5 AND EXERCISES 
ECONOMICS 



$X - \/ li . grogs 
>N HAYES, Ph.D. 

ical Economy at Yale University 




H^HH COMPANY 

1916 mm 



1 



PROBLEMS AND EXERCISES 
IN ECONOMICS 



BY 

HARRY GORDON HAYES, Ph.D. 

Assistant Professor of Political Economy at Yale University 









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NEW YORK 

HENRY HOLT AND COMPANY 

1916 



r+Bn/ 
.5" 

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Copyright, 1916, 

BY 

HENRY HOLT AND COMPANY 



Privately printed, September, 1915 ; January, 1916 
Published August, 1916 




SEP -I 1916 



THE QUINN & BODEN CO. PRE89 
RAHWAY, N. J. 

©CI.A437489 






PREFACE 

This book of problems and exercises, originally 
prepared for the use of students in the University 
of Minnesota, has been thoroughly revised and en- 
larged for the present edition. It is designed to 
serve teachers and students in the Principles of Eco- 
nomics by furnishing illustrative problems and ex- 
ercises in convenient form. It is believed that the 
use of such problems will tend to accomplish the 
following results : 

(1) Illustrate the principles of the science and 
the subject-matter of the text. 

(2) Form a basis for class discussions, and for 
discussions by students outside of class. 

(3) Promote close thinking on the part of the 
student. 

(4) Encourage students to read more critically. 

(5) Stimulate interest in the subject. 

The problem method succeeds best when certain 
problems are assigned for written exercises, the pa- 
pers read and returned to the student, with errors 
indicated, to be corrected and returned to the 
instructor. For large classes this plan can be best 
followed by having special assistants to read the 

iii 



iv PREFACE 

papers. But preparation of the papers by the 
student, even if some, or all of them, may not be 
given specific criticism, is eminently worth while, as 
is the study of problems without reducing the an- 
swers to writing. A few suggestions with regard 
to the method of attacking problems, together with 
a scheme for the preparing and marking of papers, 
are included at the end of the book. It is suggested 
that teachers use care in assigning problems, that 
those which are too difficult for the student or those 
for which help is not contained in the text or as- 
signed reading shall be omitted. 

The outline of the book, and the order of arrange- 
ment of the problems follow, in general, Professor 
Seager's Principles of Economics, which it is in- 
tended to accompany. As the problems and exer- 
cises relate to the general principles of economics 
rather than to the particular subject-matter of the 
text, and as many of them contain within them- 
selves most of the data needed for their solution, 
the book should prove practically as well suited to 
accompany any other text-book. 

The author wishes to acknowledge a very special 
indebtedness to Professor F. M. Taylor, of the Uni- 
versity of Michigan, first, for the general idea of the 
problem method which is embodied in this book; sec- 
ondly, for the training, while student and teacher 
under his direction, in his method of constructing 



PREFACE v 

problems and adapting them to effective, use; and 
thirdly, for a large number of problems either copied 
or adapted from his Principles of Economics and 
from his lists of examination questions, for which he 
gave generous permission. The author is also under 
special obligation to Dr. Carl E. Parry, of Ohio 
State University, for valuable suggestions and criti- 
cisms. In addition, he wishes to express apprecia- 
tion for permission to use a few problems prepared 
by Dr. Parry, and a few from the Outlines of Eco- 
nomics published by the University of Chicago Press. 
Such problems, together with those from Professor 
Taylor, are indicated by the appropriate initial, 
without parenthesis if copied, with parenthesis if 
adapted. 

H. G. H. 

Minneapolis, 
February 5, 1916. 



PROBLEMS AND EXERCISES IN 
ECONOMICS 



INTRODUCTION. 

1. a. Mention several wants which you have 
which are dependent upon economic goods for their 
satisfaction. 

b. Mention wants which you have which are in 
no way dependent upon economic goods for their 
satisfaction. 

2. Define economics. Amplify the definition 
showing what the science includes and what it ex- 
cludes. 

3. a. Are the questions suggested by the follow- 
ing terms economic: woman suffrage, prison reform, 
Sunday baseball, six-year presidential term, inter- 
collegiate athletics, eight-hour day, submarine war- 
fare ? 

b. Do those which are not economic involve eco- 
nomic considerations? Explain. 



2 INTRODUCTION 

4. List five important questions of the day. 
Designate those which are essentially economic and 
those which involve economic matters. 

5. List five questions of local importance in your 
city or town. Which of these are economic? Which 
Evolve economic matters without being essentially 
economic ? 

6. Name some of the laws of this state that have 
economic consequences. Can you mention any im- 
portant state law that is without economic effect? 

7. Is the main purpose which you hope to accom- 
plish in life economic? If not, is it in any degree 
economic ? 

8. How is family life dependent upon economic 
conditions ? 

9. Do you believe that social prestige is largely 
dependent upon economic possession? If so, is the 
fact regrettable? Explain fully. 

10. Suggest two subjects of interest to economics 
students to-day that were not considered fifty years 
ago. Account for their development. 

11. Give an historic illustration of the fact that 
economic strength is vital to the life of a people. 



II. 

RISE OF MODERN INDUSTRY IN ENGLAND. 

1. a. Account for the term " Manorial System." 

b. State the chief characteristics of this system. 

c. What were the advantages of this system as 
compared with our present industrial system? The 
disadvantages? 

2. What was the main purpose of the gilds? 
What is the main purpose of our labor unions? 

3. " Statutes of Laborers — passed in 1351, and 
subsequent years — seem to have had little practical 
effect." — Seager, p. 7. Account for these laws and 
for their failure. 

4. a. What was the "National System"? 

b. Account for the existence of this system. 

c. Are we at all tending toward such a system 
to-day? Illustrate. 

5. a. What was the "Mercantile System"? 

b. What was the relation between this system and 
the "National System"? 

3 



4 RISE OF MODERN INDUSTRY 

c. Were the American colonists at all affected by 
the mercantile policy? Explain. 

6. " The mechanical inventions were not the 
cause of the Industrial Revolution; they were only 
an incident." Argue in support of this view. Do 
you agree? 

7. a. What do the words laissez-faire mean? 
b. What is meant by a laissez-faire policy? 

8. " The policy of laissez-faire was an inevitable 
product of the time in which it originated." 

a. Give supporting argument. 

b. Does this help to account for the abandon- 
ment of the policy of mercantilism? 

9. Give reasons for preferring to have lived be- 
fore the advent of the factory system. For pre- 
ferring to live under the factory system. 

10. Did the factory system lead to a modification 
of the laissez-faire policy? Explain. 

11. Is the tendency to-day toward a greater or 
a lesser application of the laissez-faire policy? 
Cite evidence to support your answer. 



III. 

THE INDUSTRIAL EXPANSION OF THE 
UNITED STATES. 

1. " The industrial opportunities that prevailed 
in the United States during the last two centuries 
made the laissez-faire principle inevitable." Give 
supporting argument. 

2. " Very early the North and South began to 
quarrel about protection to manufacturing indus- 
tries." 

a. State explicitly just why there was a conflict 
of interest in regard to protection. 

b. Does this conflict of interest still exist? If so, 
has it at all abated? Cite evidence in support of 
your answers. 

3. State the chief economic advantage that has 
resulted from the development of our railroads ; the 
political advantage ; the general social advantage. 

4. Account for the fact that in Iowa alone there 
was not an increase in population during the decade 
ending 1910. 

5. What are the economic forces back of the rela- 

5 



6 INDUSTRIAL EXPANSION OF U. S. 

tively large increase of urban population as com- 
pared with rural population ? 

6. Cite evidence to support " the growing con- 
viction that in protecting liberty and property the 
government of the United States has neglected the 
interests of equality." 

7. "From 1899 to 1909 the number of wage- 
earners in manufacturing establishments increased 40 
per cent and the value of the products increased 81 
per cent." What is the significance of this state- 
ment? Would the increase in the volume of manu- 
factured goods as compared with the increase in the 
number of laborers in manufacturing establishments 
be more vital than this comparison? Explain. 

8. " In 1850 we produced 1 ton of cereals per 
person. In 1900, with a smaller proportion of our 
population engaged in agriculture, we produced 1^ 
tons of cereals per person." — Smith, Industrial and 
Commercial Geography, p. 556. How do you ac- 
count for this increase in product per person? 

9. " Relatively our exports of manufactured 
products are increasing at the expense of our ex- 
ports of agricultural products." Account for this 
fact. Argue that we may expect a still greater rela- 
tive increase in the export of manufactured goods. 



INDUSTRIAL EXPANSION OF U. S. 7 

10. " The per capita foreign trade of the Falk- 
land Islands is about $600 per person, while that of 
the United States is less than $40 per capita." — 
Smith, Ibid., p. 683. Why is there such a marked 
difference in the foreign trade of these two communi- 
ties? Can you judge the relative economic well- 
being of the inhabitants of these communities from 
these facts? Explain. 

11. The Annalist, January 17, 1916, estimated 
our foreign trade for 1915 at $5,350,000,000, and 
our home trade for the same year at $507,000,- 
000,000. It was also estimated that "all of our 
foreign commerce since the Civil War made but one- 
fifth of the home trade in the year 1915." Why is 
the volume of our foreign trade so small relative 
to our domestic trade? On the basis of these fig- 
ures estimate our total trade per capita ; per fam- 
ily of five. 

12. " The citizens of the United States have in- 
vested less than one per cent of their wealth abroad 
while the citizens of England have made foreign in- 
vestments amounting to a much larger percentage of 
their wealth." Account for this difference. May 
our foreign investments be expected to increase? 
Explain. 



IV. 

ECONOMIC CONCEPTS. 

A. Economic Activity. 

i. Have you ever engaged in economic activity? 
If so, what motive, or motives, prompted you to 
do so? 

2. Do you expect to engage in economic activity 
after leaving college? If so, from what motives? 

3. Make a list of the motives to business activity 
that perhaps characterize (a) the student can- 
vasser; (6) the college graduate entering a pro- 
fession; (c) a manufacturer; (d) an actor; (e) an 
unskilled street laborer. 

4. What motives to business activity are most 
worthy; least worthy? 

5. Explain the meaning of the expression " busi- 
ness is business." Should " business " be " busi- 
ness "? 

8 



ECONOMIC CONCEPTS 9 

B. Economic Goods and Their Value. 

6. " If I had these shells back home I could get 
good money for them, but to these people they are 
worthless." Account for this condition. 

7. " Let us bottle this water and sell it, thereby 
waxing rich." Under what conditions would this be 
possible? 

8. " A thing may have value and not be useful : 
e.g., an old stone prized by a collector." Point out 
the error. — T 

g. " A horse is no wealth to us if we cannot ride, 
nor a picture if we cannot see, nor can any noble 
thing be wealth except to a noble person." — 
Ruskin, Munera Pulveris, p. 25. Do you agree? 
Discuss the significance of the statement. 

10. Are the following economic goods : sunshine, 
a good disposition, fresh air, water in Lake Su- 
perior, the skill of a surgeon, the services of a 
surgeon, whisky, old postage stamps? 

11. "Art Smith, the aviator, receives $1,000 per 
day for his flights." — A news item. Why do his 
services command a price so many times larger than 
that paid for the services of a University professor? 



10 ECONOMIC CONCEPTS 

12. The pelt of a chinchilla — a piece of fur about 
the size of a man's hand — sells for $70. Account 
for this fact. 

C. Production and Consumption 

13. Adam Smith referred to household servants 
as " unproductive laborers." Show that servants 
are productive. What do they produce? Give some 
justification for Adam Smith's terminology. 

14. " The only real producers are the miners, 
lumbermen, and farmers ; for they are the only ones 
who add something to the total wealth." Show that 
there is no essential difference in the contribution 
of the farmer, the miller, the baker, the grocer, and 
the delivery man. — T. 

15. " Let us do away with all these non-producing 
parasitic middlemen." 

a. Name three or four classes of middlemen. 

b. Show that these middlemen are producers. 

16. Is the teacher a producer? What does he 
produce? Answer the same question in regard to a 
cook; a laborer in a chair factory; a chair manu- 
facturer. 

17. Are the majority of University students pro- 
ducers or parasites? Explain. 



ECONOMIC CONCEPTS 11 

18. If one is not a producer, how can he get eco- 
nomic goods by which to live? 

19. An automobile may be either a producer's 
good or a consumer's good. Illustrate. 

20. " There is not a real antithesis between pro- 
duction and consumption. Production goods are 
merely consumption goods a little less ripe." " Yes, 
but it is of the greatest importance to the individual 
and to society that the difference between these two 
classes of goods should be clearly recognized." Dis- 
cuss the validity of the second quotation. 

21. A country inn-keeper hires a man to cripple 
the automobiles of the passers-by. Is this man a 
producer? 

22. " The car company was not responsible for 
the accident, but I got $800 damages for my client. 
I kept $400." — A lawyer. Did the lawyer render 
productive services in pleading this case? Discuss 
fully. 

23. Mention several laws that prohibit predatory 
production. 

24. Suggest forms of predatory production, now 
allowed, that should be prohibited by law. 



12 ECONOMIC CONCEPTS 

D. Economic Law. 

25. " The wage of labor tends to approximate the 
standard of living." 

" Every man should be paid a living wage." 
" Employers shall not pay laborers less than 
$5.00 per day." 

a. May these statements be said to be laws? If 
so, specify the kind of law which each exemplifies. 

b. What conflicts, if any, exist, or may exist, be- 
tween these statements? 

26. " A law, limiting the, rate of interest to six 
per cent in western Canada, would be opposed to 
economic law and would thus be doomed to fail." 
Explain what is meant. Is it possible that the posi- 
tion taken is sound? 



CONSUMPTION OF WEALTH. 

1. Illustrate the law of diminishing utility from 
your own experience. 

2. " Eat, drink, and be merry, for to-morrow we 
die." Does this suggest a characteristic of eco- 
nomic wants? Does this characteristic change as a 
people become more highly educated? Explain and 
illustrate. 

3. Why does the clerk say to the hesitating cus- 
tomers, "They are wearing this now"? Is it re- 
grettable that such remarks influence us, at least 
many of us? Discuss. 

4. Let the following schedule represent the de- 
mand in a given market: 

Demand Price 

1,000 bushels of potatoes would be taken at 55 cents per bushel 
1,100 " " " " « " " 54 " " " 

1 200 " *' " " " " u 53 " '• " 

1,300 " " " " " " " 52 " " " 

1^00 " " " " « » " 51 » » « 

With this demand schedule, price will be 52 cents 

13 



14 CONSUMPTION OF WEALTH 

if there are 1,300 bushels of potatoes for sale at 
each of the prices indicated. If the supply of- 
fered for sale at these prices were changed to 1,100 
bushels, what price would prevail? Could it be said 
that demand had changed? If not, suggest a 
change in the schedule that will indicate a change 
in demand. 



5. Construct two schedules similar to the one in 
the preceding problem, one showing the demand to 
be more elastic and the other showing it to be more 
inelastic than the demand there indicated. 



6. Formerly, an expert cabinet maker could be 
found in almost every locality. Why is this not 
true to-day? This change is in accordance with what 
economic principle? By just what process is our 
industrial life made to conform to this principle in 
this case? Mention other similar manifestations of 
this principle. 

7. Illustrate uneconomical consumption. 

8. A Des Moines surgeon spent $3,000 in build- 
ing a wall around his back-yard. Discuss the pro- 
priety of this expenditure. 



CONSUMPTION OF WEALTH 15 

9. A. : " Enormous amounts of social wealth are 
destroyed each day in the consumption of candy, ice 
cream, tobacco, liquor, et cetera." 

B. : " Yes, and similar amounts are destroyed in 
consuming bread, meat, and potatoes." 

Discuss the merits of this suppositious contro- 
versy. 

10. The servant class in the Philippine Islands 
greatly resented the displacement of the Spanish 
by the Americans since the latter did not employ 
nearly so many servants. 

a. Was this a hardship to servants? 

b. Argue that the Filipino laborers as a whole 
did not lose by this economy of the Americans. 

c. Show that this economy in servants may be 
expected to have benefited Filipino laborers. 

11. Customer: "I cannot afford to pay $5 per 
lens for invisible bifocal glasses, when I can get 
cemented bifocals which are just as serviceable, al- 
though they do not look so well, for $1.25 per lens." 

Dealer : " Nonsense. You pay $5 for a pair of 
shoes to put on your feet. Surely your eyes are 
much more important than your feet." 

a. Which is the better economist? 

b. Discuss the economic principle involved. 



16 CONSUMPTION OF WEALTH 

12. A public school text-book company's exhibit 
at the Panama Exposition contained a card made 
up in part as follows: 

The American people spend each year: 



For public schools $483,000,000 

For text-books 18,000,000 

For chewing gum 25,000,000 

For candy 135,000,000 

For soft drinks 325,000,000 

For tobacco 410,000,000 



a. What argument is implicit in this statement? 

b. Can we conclude from these facts that our 
text-books do not cost us too much? What should 
we pay for them? 



VI. 

PRICE. 

A. Introduction — Price Terms. 

1. a. Why do we have prices set on goods and 
services? Is this really necessary? 

b. Why do certain goods and services demand 
very high prices while other goods and services com- 
mand very low prices, or no price at all? 

c. Why should the economist study price? 

2. " All the units of a good have the importance 
— take the value — of the least wanted unit." 

a. Why is this true? Illustrate. 

b. Has this statement any relation to the mar- 
ginal utility theory of value? Explain. 

c. May the buyer with the least want, as meas- 
ured by price offer, have the keenest desire? 

3. " Marginal utility does not determine value, 
it only measures value." Do you agree? 

4. Explain the so-called paradoxes of value. 
They are as follows : 

17 



18 PRICE 

a. A more useful article, like bread, is less valua- 
ble than a less useful article, like diamonds. 

b. A most useful article, like air, may have no 
value at all. 

c. A part is sometimes more valuable than the 
whole ; for by destroying a part, the remainder is 
often worth more than the whole. 

5. Suppose that a Crusoe looked on his umbrella 
as filling a utility to him which he estimated at $10. 
Suppose, further, that he could make another just 
as good with five days' labor and that he estimated 
the disutility of a day's labor at $1. 

a. What is meant by the last clause? 

b. Is it reasonable to estimate the disutility of a 
day's labor in such a way? 

c. What value would Crusoe probably set on the 
umbrella ? 

d. What would determine that value — utility or 
cost?— T. 

6. Illustrate from your own experience the bal- 
ancing of disutility against utility in the case of: 
(a) attending a public lecture; (b) calling on a 
friend; (c) working for money. 

7- In connection with each of the three cases 
above, consider Seager's statement that the existence 



PRICE 19 

of a surplus of utility above disutility makes life 
worth living. 

8. Show that in each of the above cases the dis- 
utility involved will vary with the circumstances of 
the individual. 

9. " If I buy that hat I will then have to have a 
new coat, new furs, and new shoes." Will the price 
of the coat, furs, and shoes help to determine the 
price that will be paid for the hat? Are cases in- 
volving the principle of complementary price de- 
termination of frequent or of rare occurrence? Give 
other illustrations of this principle. 

10. a. " A general rise in exchange values is im- 
possible." Explain. 

b. How, then, can there be a general rise in 
prices? 

11. "Those who speak of diamonds having no 
use-value, and of food having infinite use-value, must 
be drawing their ideas, not from the life of men but 
from the life of cattle." — Smart, Theory of Value, 
p. 22. Explain. Why is the price of bread low and 
the price of diamonds high? 

12. As a result of a state anti-tipping law the 
bootblacks of Des Moines have increased the price 
of shines from five cents to ten cents. 

a. Should you expect them to lose any customers? 



20 PRICE 

If so, by what economic term may these persons be 
designated? 

b. If the price is later changed back to five cents, 
a few bootblacks may be expected to drop out of the 
business. What economic term may be used to 
designate these persons? 

c. Is it possible that the most efficient men, if 
any, would drop out? Explain. 

B. Fixed Supply. 

13. If the units of a particular good offered for 
sale may not be increased in amount, the good is said 
to be a fixed supply good. 

a. Are any of the goods offered for sale in the 
stores of your city fixed supply goods? Illustrate. 

b. Do the works of persons not now living belong 
to this class? 

c. Is land a fixed supply good? 

d. Many goods that are normally not fixed in 
supply may, temporarily, belong to this class. Il- 
lustrate. 

e. The important feature of a fixed supply good, 
for price purposes, is that cost of production has no 
influence in determining price. Show that cost does 
not influence the price of fixed supply goods. 

/. Under competition, at what point will the 
price per unit of a fixed supply good be set? 



PRICE 21 

14. a. Construct a supply schedule, similar to 
the demand schedule in problem 4, section V, showing 
1,200 bushels of potatoes offered for sale at each of 
the prices there indicated. It will begin as follows : 
At 55 cents, 1,200 bushels of potatoes are offered 
for sale. 

b. Combine the data in these two schedules into 
one, similar to the schedule in problem 30 of this 
section. 

c. Construct a supply and demand schedule for 
twenty available business sites; for ten works of art 
by an artist no longer living. 

15. " The normal price of sandwiches is five 
cents, but the present market price is $1." 

a. Explain the meaning of the first clause. 

b. Why is the normal price five cents? 

c. Account for the present market price. 

16. One hundred ladies' suits which are now out 
of style remain unsold. 

a. What will determine the price that will tend to 
be set upon these if the stock is divided among three 
competing merchants? 

6. Will the cost that was incurred in producing 
these, or the cost that would be incurred in produc- 
ing others like them, determine the price? Will it 
influence the price? Explain. 



22 PRICE 

17. By what process is the price of Lincoln's auto- 
graphs determined? How does this differ from the 
process of setting a price upon the autographs of the 
present President of the United States, if he should 
wish to undertake the work of furnishing autographs 
as a by-product of his official duties? 



18. There are a fixed number of building sites 
within a mile of the University campus. 

a. What will determine the price of these sites? 

b. If the number of sites available for the use of 
university people should be increased through the de- 
velopment of transportation facilities, what effect 
will this have on the price of nearby sites? May the 
cost element influence the price of the new sites? 
Explain. 



19. A. : " Land is by far the most important fixed 
supply good." 

B. : "I do not see how you can call land a fixed 
supply good when transportation facilities and other 
improvements may make more land available in any 
market." 

A. : " Yes, but compared with the large bulk of 
our goods the supply of land in any market can in- 
crease but very slowly." 



PRICE 23 

C. : " Yes, but of more significance is the fact that 
land once in use tends to remain in use permanently, 
at least so long as it bears any rent, while other 
goods wear out and must be replaced." 

A. : " Which means that the supply is fixed — some- 
what rigidly from the side of additions to the supply 
and quite rigidly from the side of deductions from 
the supply." 

a. Do you agree with A. or B.? 

b. Is C.'s point important? 

c. If, due to an increased demand, the price of 
safety razors should increase fifty per cent, would 
the price remain at the new figure, assuming de- 
mand to remain at the new point? Explain. 

d. If, due to an increased demand, the rent of 
sites in your city should increase fifty per cent, would 
rent remain at the new figure, assuming demand to 
remain at the new point? Explain. 

e. If a tax of fifty per cent of the selling price 
should be placed upon safety razors, what effect 
would this tend to have upon the price of these goods? 
Explain. 

/. If a tax of fifty per cent of the yearly rental 
should be placed upon business sites, what effect 
would this tend to have upon the rent derived from 
these sites? Explain. 



24 PRICE 

20. Formulate a principle for the determining of 
price in the case of a good the supply of which is 
fixed. 

C. Variable Supply Goods. 

(1) The Influence of Cost. 

21. " The units of a variable supply good flow as 
a stream through the market place." 

a. Is this true of articles of clothing, food, fuel, 
and furniture? Is it true of the equipment and raw 
materials of manufacture? Is it true of dwelling 
houses? 

b. If the market supply is made up of constantly 
changing units, what relation will tend to exist be- 
tween price and cost? Why? 

c. Does the length of time that must elapse before 
this relation is brought about differ in the case of 
different goods? Does it differ greatly? Why or 
why not? Give several illustrations. 

22. The prices of automobiles have been falling 
for several years. How do you account for this? 
How much lower will they go ? 

23. A shoe firm in Minneapolis posted the fol- 
lowing " special sale " schedule on its walls : 



PRICE 25 

Ladies' Shoes Men's Shoes 

.00 values for $3.75 $5.00 values for $4.00 

.00 values for $3.00 $4.00 values for $3.20 

.00 values for $2.25 $3.00 values for $2.40 



Upon being asked the reason for the difference in the 
two price schedules, the manager said : " There is 
more difference between the wholesale and retail 
prices of ladies' shoes than of men's shoes." Account 
for the fact stated in the quotation. 

24. A residence is taxed $60. $20 of this amount 
represents the tax upon the building, and $40 the tax 
upon the lot. Under the operation of the principles 
of price, the $20 house tax will be paid by the tenant 
in the long run, while the $40 land tax will be paid 
by the landlord. Explain how it is that things come 
out this way. — (T.) 

(2) Goods Produced at a Uniform Cost per Unit. 

25. a. If wooden chairs can be produced at a 
cost of thirty cents per chair, including necessary 
profit, regardless of the quantity produced, what 
should you expect to be the price of such a chair? 
Why neither more nor less? 

b. If the manufacturers should be taxed ten cents 
for each chair produced, what effect would this tend 
to have on the price of such chairs? — (T.) 



26 PRICE 

26. Suggest articles that you should expect to be 
produced under constant, that is, uniform cost, re- 
gardless of the amount produced. 



27. Select a uniform cost good and construct a 
supply and demand schedule. What price will be 
set? Prove that a change in demand will not alter 
price. Prove that a change in cost as a result of 
levying a tax, or for any other reason, will result in 
a change in price corresponding to the change in 
cost. 

(3) Goods Produced at an Increasing Cost per 
Unit. 

28. " We may expect the price of meat to steadily 
increase." Why so? 

29. Suggest several articles the production of 
which you should expect to entail greater cost per 
unit as the amount produced is increased. Select an 
increasing cost good and construct a supply and de- 
mand schedule. What price will be set? 

30. Let the following schedule represent the sil- 
ver market: 



PRICE 27 



Supply 


Price 


Demand 


Mil. Oz. 


Cents 


Mil. Oz. 


215 


59 


185 


210 


58 


190 


205 


57 


195 


200 


56 


200 


195 


55 


205 


190 


54 


210 



With reference to this market, answer the fol- 
lowing questions: 

a. What price will be set? 

b. How many ounces will be produced? 

c. If a tax of two cents is levied on each ounce 
produced, what price will be set? Prove. 

d. Propose a tax that will not affect price, and 
that will, therefore, not be shifted? Just why will 
such a tax not be shifted? 

e. Prove that it is a matter of indifference in the 
case assumed in this schedule whether a tax is levied 
upon producers, as in " c," or upon consumers. 

/. What kind of a good is silver here represented 
to be? 

(4) Goods Produced at a Decreasing Cost per 
Unit. 

31. a. What is meant by a decreasing cost good? 
b. Suggest goods that are produced under con- 
ditions of decreasing cost. 



28 PRICE 

c. Construct a supply and demand schedule for a 
decreasing cost good. See problem 45 of this section. 

32. " A decreasing cost good has in it the germs of 
monopoly." " Yes, and the germs are very active, 
too." Is this more true of a decreasing cost good 
than of an increasing cost good? Explain. 

(5) Joint Cost Goods. 

33. "The skins and seeds (of tomatoes) that 
were formerly wasted are now utilized, the former as 
a stock feed and the latter as a source of oil." — Re- 
port of U. S. Department of Commerce. What effect 
will this utilization of by-products tend to have 
upon the price of tomatoes? 

34. What would tend to be the effect upon the 
price of beef of a customs duty on the import of 
hides high enough to discourage their importation? 
-(C) 

35. a. If a large part of the people who now 
make beef and pork a part of their diet should per- 
manently discontinue the use of these foods, what ef- 
fect would this change tend to have on the price of 
bone fertilizers ? Explain fully. 

b. This change in the price of bone fertilizer, by 
affecting the price of the fertilizer which is a by- 



PRICE 29 

product of the fish industry, would affect the price 
of fish. In what way ? 

36. A competitive system of railway rates would 
establish lower freight rates, per ton mile, on com- 
modities going from our Atlantic coast westward, 
than on commodities of similar value going from our 
Pacific coast eastward. Explain why, according to 
the doctrine of normal price for joint products. — P. 

D. Price Determined by Capitalization of In- 
come. 

37. If a certain site yields $400 net rent per 
year and the market influences have fixed the rate of 
capitalization for land income at five per cent, the 
price of the site will be $8,000. 

a. What is the computation process by which the 
price is thus fixed at $8,000? 

b. If a tax of $100 per year be imposed upon this 
site, what will the net income from the site then be? 
The price of the site? 

c. Will the landlord not raise his rent to $500 and 
force the tenant to pay the tax? Explain carefully. 

38. What is the market value of a perpetual an- 
nuity of $300 if the rate of interest on such invest- 
ments is four per cent? Three per cent? Six per 
cent ? 



30 PRICE 

39. A certain automobile which is hired out, regu- 
larly yields its owner a clear income over all expenses 
of about $300 per year. With interest at six per 
cent, this fact would cause the car to have what 
market value? Is this a reasonable problem? — T. 

40. If the rate of interest earned on government 
bonds is commonly 1.9 per cent, what price will be 
paid for a two per cent government bond? — T. 

41. "A land tax imposed a generation or more 
ago is burdenless." Why is this true? 

42. The following four pieces of property each 
yield an income of $7 a year; they sell as follows: 

(a) a share of Pennsylvania Railroad stock, $140; 

(b) a share of stock in an oil company, $50; (c) a 
piece of land in New York, $200 ; (d) an annuity with 
only two years to run, $13. Explain the difference 
in these prices. — C. 

E. Monopolized Goods. 

43. Assume the following demand schedule: 



Price Demand 

$4.00 (A) 175,000 (B) 20,000 

3.00 240,000 100,000 

2.00 260,000 300,000 

1.00 280,000 700.000 

.50 300,000 1,000,000 



PRICE 31 

a. With a fixed supply of 300,000, what price 
will be set when the supply is controlled by compet- 
ing sellers if demand is as in (A) ; if as in (B)? 

b. If the sellers combine, what price will be set 
with demand (A) ; with demand (B)? 

c. Will combination prove most profitable under 
demand (A) or demand (B)? 

d. Formulate a general principle for monopoly 
price on the basis of the conclusion reached in c. 

e. If a fifty-cent tax be levied upon this good, 
what will be the price under monopoly in (A) ; in 
(B)? 

/. Formulate a general principle relating to the 
shifting of a monopoly tax on the basis of the con- 
clusion reached in e. 

44. Change part a of the above problem to read — 
If any amount can be produced at a cost of fifty 
cents per unit — and answer above questions. 

45. Let the following schedule represent the 
market for a certain grade of oil: 



Supply 


Price 


Demand 


Hil. Gal. 


Cents 


Mil. Gal. 


60 


7 


100 


100 


6 


150 


150 


5 


200 


200 


4 


300 


300-400 


3 


400 



32 PRICE 

a. Under competition, what price will prevail? 

b. Under monopoly, what will be the price? 

c. What dilemma confronts the monopolist when 
he is controlling a decreasing cost good? 

d. What will be the effect upon price if a one- 
cent tax should be levied upon the amount pro- 
duced? 

46. On the basis of the above schedule, show how 
the monopolist would gain from being able to sell at 
different prices. 

47. " The fear of a decrease in sales limits the 
rise of monopoly price." State the various reasons 
for a decrease in the demand for monopolized 
products due to a rise in price. 

48. " One hears a good deal of nonsense about the 
power possessed by a public utility company to rob 
the public. The company can get no more than the 
public is willing to pay. If the public think the 
price too high, they will not pay it; and the com- 
pany will be forced to put the price at what the 
public is convinced is a fair price." 

a. What is a fair price as generally understood 
by the public? 

b. Is there good reason to expect that the com- 
panies that furnish public utilities will give service 



PRICE SS 

for fair prices, in the absence of special contract or 
government control? Why? — T. 

49. " This company has voluntarily reduced the 
price of gas. We found that we could furnish it at 
a lower figure." — An officer of a gas company. 

a. Are you inclined to accept the second state- 
ment as an explanation of the company's action? 
Explain. 

b. Show definitely how self-interest may have 
prompted the price reduction. 

E. Miscellaneous Problems in Price. 

50. " Problems in price are usually based on the 
assumption that buyers and sellers have a keen de- 
sire to secure prices that are selfishly most desirable, 
and that they are able to secure the most favorable 
prices possible. This assumption is not always true. 
Custom, for example, ..." 

a. Complete the quotation. 

b. Suggest other factors that enter to vitiate the 
above assumption. 

c. Give illustrations to prove the contention here 
made. 

d. Generally speaking, is the above assumption 
true? 



34 PRICE 

51. "Prices are not determined on nicely ad- 
justed scales." Explain the meaning of this quota- 
tion. Do you agree ? 

52. A lady paid $25 for an old mahogany chair 
that the dealer had offered to sell for fifty cents. 
Is it possible that she would not have bought the 
chair if it had been priced at fifty cents? If so, 
did she sacrifice $24.50 in this case, or did she 
get an equivalent of the amount paid? Does this 
help to explain the prices charged by those who 
cater to the " best trade "? Are certain prices that 
are set for the " best trade " a burden to the less 
wealthy, or poor? Consider especially physicians' 
and dentists' charges as contrasted with cafe prices. 

• 

53. " Shifting of taxation will take place regu- 
larly in proportion as the following causes are pres- 
ent : (1) the consciousness of unequal distribution 
of the burden of taxation, (2) the wish to rid oneself 
of the unequal burden, (3) the pecuniary ability 
to accomplish this purpose." — Cohn, The Science 
of Finance, sec. 250. 

a. What element is introduced here which is usu- 
ally not taken into account by economists in con- 
sidering the factors that determine price? 

b. Should this element be included? If so, what 
weight should be given it? 



PRICE 35 

54. " If the land taxes are levied according to 
acreage under cultivation, or according to unit of 
product, the effect of the tax is quite different from 
the effect when the tax is levied according to the 
rent, or market price of the land." Explain on the 
basis of price principles. 

55. " An increase in the demand for cottonseed 
oil will not permanently benefit cotton growers." 

a. Give supporting argument. 

b. Argue that present cotton producers will gain. 

c. In either case, what will tend to be the effect 
upon the price of cotton cloth? 

56. The exclusive right to the use of a box in the 
Metropolitan Opera House, New York, changed 
hands last year at a price of $120,000. The cost 
of producing that section of the theater could not 
have been more than $10,000. Argue from princi- 
ples to explain the discrepancy between the cost 
and the price in this case. — P. 

57. " It is utterly impossible that silver should 
long remain at fifty-five cents an ounce, when three 
or four of the biggest mines can produce it at a cost 
under thirty cents; for, as everybody knows, the 
price of anything is, in the long run, the same as 
the cost of producing it." Is that sound? — T. 



36 PRICE 

58. Commodity X is imported into country A 
from country B ; while countries C, D, and E also 
produce X, and countries F, G, H consume it as well 
as country A. 

a. What is the effect of the imposition of an im- 
port duty levied in A 

1. Upon the price of X and A? 

2. Upon the price of X and B? 

3. Upon the price of other commodities in A and 
B? 

b. Assume the same conditions, excepting that in- 
stead of being a competitive field of consumption, A 
has an effective monopoly of the consumption of X. 
What is the effect upon prices as above? 

c. Assume that there is competition in the field 
of consumption as in 0, and that B has a monopoly 
of the production of X. What is the effect upon 
prices as above? — Toronto University Examination 
Lists. 

59. " In college towns, a large number of families 
really pay nothing for the support of state or local 
government since they reside there only temporarily, 
live in rented houses, and own no property which 
the assessor can reach." Examine. — T. 

60. If the government, wishing to tax " luxury," 
should levy a tax of $1 upon each person occupy- 



PRICE 37 

ing a box at the theater, the tax to be collected by 
the theater when it sells tickets, what effect would 
this have upon the prices of box tickets? Would 
the theaters add $1 to the prices of the tickets, as 
the government intended; or would they add a 
fraction of $1 to the prices ; or would they leave 
the prices as they now are, thus themselves bear- 
ing all of the tax? 

6 1. " The imposition of a new tax on a piece of 
land is equivalent to a partial confiscation of said 
land; the removal of a long-standing tax is equiva- 
lent to a free gift to the owner of said land." Ex- 
plain fully.— T. 

62. Certain reformers urge that taxes on build- 
ings be decreased, or wholly removed, and taxes on 
land be correspondingly increased. What effect 
would this tend to have on : 

a. The rent of city lots? Explain. 

b. The selling price of city lots? Explain. 

c. The rent of city buildings? Explain. 

d. The selling price of city buildings? Explain. 

e. Why do reformers propose this change in tax 
policy ? 

63. " From the economic standpoint, the right 
price is the one which brings about a proper regu- 



38 PRICE 

lation of economic action." Explain and defend that 
statement. — T. 

64. " The general principle is that the tax in- 
flicts more loss on either party, the less the elas- 
ticity of that party's demand or supply; other 
things including the other party's elasticity, being 
the same." — Edgeworth, " The Pure Theory of 
Taxation," Econ. Jour., 7 : 48. Support this state- 
ment. 

65. " No doubt there is much to be said in favor 
of giving legal recognition to monopoly in various 
fields of economic activity, and trusting to the legal 
regulation of the prices of the commodities or serv- 
ices supplied by these monopolies to insure fair treat- 
ment for the general public. But this policy is one 
which should be entered upon only after long and 
careful consideration. Anyhow, we should resort to 
said policy only when the maintenance of effective 
competition becomes manifestly impossible. For 
(1) it is extremely difficult by legal regulation to 
fix upon prices which are fair to both producers and 
consumers, and (2) we need a body of freely deter- 
mined prices to guide our employment of the pro- 
ductive resources at our disposal." 

a. Support the contention made in the clause of 
the last sentence which is marked (1). 

b. Support that contained in (£). — T. 



VII. 
PRODUCTION: LAND. 

A. What is Land? 

i. a. What is land? 

b. Is the fertility in the soil part of the land? 

c. Should fences be classed as land? Tile drains? 
Trees in a young orchard? Trees in a wood lot? 

d. Does difficulty of making distinctions in par- 
ticular cases warrant the conclusion that such dis- 
tinctions are useless? Illustrate. — (T.) 

2. " The supply of land is fixed." " The sup- 
ply of land is elastic. Witness the great increase 
in the supply of land during the past century." 
Discuss the point at issue. 

3. What are the chief points of difference be- 
tween land and other goods? These differences fur- 
nish the basis for what tax proposal? 

B. Diminishing Returns. 

4. Why do not farmers confine their work to one 
acre of land? Why is it socially important to in- 
crease the available stock of land by improvements 
such as drainage and irrigation projects, and trans- 
portation facilities ? 

39 



40 PRODUCTION: LAND 

TABLE OF COMBINING PROPORTIONS* 



I 


II 


III 


IV 


V 


VI 


VII 


VIII 


IX 


.0 





6 


<« 

a 



S 


pq 




S 
< 


"S 
0. 

"S 




Increase of out- 
put if propor. 
to increase of 
B'8 




1 
u 

— a 

— D. 

< 



0. 

O 

O 

be 

as as 
•- 1 ' ^ 


"3 
a, 



W) 




P. IB 

S"0 


1 


20 


2 


2 






.1 


1 


1 


2 


20 


3 


6 


1 


4 


.3 


2 


4 


3 


20 


4 


16 


2 


10 


.8 


4 


10 


4 


20 


5 


35 


4 


19 


1.7 


7 


19 


5 


20 


6 


84 


7 


49 


4.2 


14 


49 


6 


20 


7 


126 


14 


42 


6.3 


18 


42 


7 


20 


8 


156 


18 


30 


7.8 


19.5 


30 


8 


20 


9 


179 


19.5 


23 


8.9 


19.8 


23 


9 


20 


10 


200 


19.8 


21 


10 


20 


21 


10 


20 


12 


236 


40 


36 


11.8 


19.7 


18 


11 


20 


14 


266 


39 


30 


13.3 


19 


15 


12 


20 


16 


290 


38 


24 


14.5 


18.1 


12 


13 


20 


18 


312 


36 


22 


15.6 


17.3 


11 


14 


20 


20 


330 


34 


18 


16.5 


16.5 


9 


15 


20 


22.2 


346 


36 


16 


17.3 


15.6 


7.2 


16 


20 


25 


362 


43 


16 


18.1 


14.5 


5.7 


17 


20 


28.5 


380 


50 


18 


19 


13.3 


5 


18 


20 


33.3 


393 


63 


13 


19.6 


11.8 


2.6 


19 


20 


40 


400 


78 


7 


20 


10 • 


1 


20 


20 


44.4 


398 


44 — 


■ 2 


19.9 


8.9 


— 5.5 


21 


20 


50 


393 


50 — 


5 


19.6 


7.8 


— 1 


22 


20 


57.1 


360 


56 — 


33 


18 


6.3 


— 4 


23 


20 


66.6 


280 


60 — 


- 80 


14 


4.2 


— 8 


24 


20 


80 


140 


56 — 


140 


7 


1.7 


— 5 


25 


20 


100 


80 


35 — 


60 


4 


.8 


— 3 


26 


20 


133.3 


40 


26 — 


40 


2 


.3 


— 1 


27 


20 


200 


20 


20 — 


• 20 


1 


.1 


— 3.3 



* This table, together with a few of the questions based 
on it, is taken substantially, with some adaptations, from 
Taylor's Principles of Economics, 1914, ch. 4. 



PRODUCTION: LAND 



41 



\A 



"1 — - ■ 



| t 



\"\'?\>J I- 



3 6 7 9/0 Si >4 /6 16 ZO Hi 23 i&J 3J-3 

Number of B.-3 



DIAGRAM OF ABOVE TABLE 

Continuous line— Rectangles measure actual increase in output 

at each combination (col. vi). 
Broken line — Rectangles measure increase in output if increase 

were proportional to increase in B's (col. v). 



5. The foregoing table shows the possible results 
from taking a given quantity of land (A) and com- 
bining with it, using upon it, a gradually increasing 
number of days of labor (B). It may, of course, 
also be used to represent the application of varying 
units of coal to a furnace, of labor to a factory, or 



42 PRODUCTION: LAND 

of any variable factor to a fixed factor. Note par- 
ticularly the second, third, and fourth columns from 
which the other columns are derived. 

a. If A's represent acres of land and B's days of 
labor, what product will result from applying 
four days of labor to the twenty acres of land? If 
the days of labor are increased one-fourth, from four 
to five, what increase in output will result? What 
would have been the increase in output if the increase 
had been proportionally equal to the increase in the 
days of labor, that is, if the output had increased 
one-fourth ? 

b. During which of the combinations does an in- 
crease in B's lead to an increase in output that ex- 
ceeds the increase in output that would have re- 
sulted if the increase in output had been propor- 
tionally equal to the increase in B's? 

c. During which of the combinations does an in- 
crease in B's lead to an increase in output that is 
less than the increase in output that would have re- 
sulted if the increase in output had been propor- 
tionally equal to the increase in B's? 

d. Column VIII, derived from columns III and 
IV, shows the average output per B in each combina- 
tion. During which of the combinations does the 
average output per B increase if more B's are 
added ? 

e. During which of the combinations does the 



PRODUCTION: LAND 43 

average output per B decrease if more B's are 
added ? 

f. During which of the combinations does the out- 
put per A increase if more B's are added? 

g. The combinations suggested in b mark the 
stage of increasing returns. Using the term 
" changing factor " instead of " B," state what is 
meant by saying that an industrial unit — a fac- 
tory, a furnace, or a parcel of land — is in the state 
of increasing returns. 

h. The combinations suggested in c mark the 
stage of diminishing returns. What is meant by 
saying that land is in the stage of diminishing re- 
turns ? 

i. " The stage of diminishing returns is not 
marked by a decrease in total return; nor is the 
beginning of the stage of diminishing returns nec- 
essarily at the point where return per addition of 
changing factor becomes less." Show that this is 
true. Then why use the term diminishing returns? 
Suggest a better term. 

j. When would days of labor applied to a straw- 
berry bed show the results indicated beyond com- 
bination 19? 

k. If A's were free and B's were not, which com- 
bination would you use, 9 or 19? If B's were free 
and A's were not? If neither were free, within 
what combinations would you work? 



44 PRODUCTION: LAND 

I. If A's represent acres of land and B's units of 
labor, which combination would you use in north- 
western Canada? In central Illinois? 

m. " Extensive farming means the working of land 
just at the beginning of diminishing returns, com- 
bination 9." 

" Intensive farming means the working of land 
in the stage of diminishing returns." Do you 
agree? Explain. 

n. Show that it will never be profitable to work in 
the stage of increasing returns if it may be avoided. 

o. Column IX shows the amount of output added 
by each additional B. If you were working at the 
16th combination, what could you afford to pay, in 
terms of output, for another B? If all land is being 
farmed, say, in the 11th combination, what wage will 
be paid, assuming A's to be acres and B's laborers? 
Why neither more nor less? 

6. " As an industrial society, we should seek to 
work just at the beginning of the stage of diminish- 
ing returns; but individual landowners will find it 
most profitable to work at the point of maximum 
output if wages are low enough to warrant it." 

a. Prove the first statement. 

b. As a society, how can we keep out of the later 
combinations? 

c. Prove the second statement. 



PRODUCTION: LAND 45 

d. How low must wages go to warrant the land- 
owner in using the 19th combination in the above 
table? What rent will the landlord enjoy at this 
combination assuming that there are no costs 
other than labor cost? 

e. What wage will warrant the landlord's using 
the 11th combination but not the 12th? How much 
rent will be received at the 11th combination? 

/. What is the average product per laborer at 
the 11th combination? What fractional part of 
the per capita product is wages? What part is 
rent ? 

g. Answer similar questions for the 17th com- 
bination. 

7. " When one gets into the stage of decreasing 
returns he begins to lose money." Do you agree? 

8. " With increasing numbers, human beings must 
find the food problem progressively a more serious 
problem ; in its effect upon per capita production of 
commodities, overcrowded land is the same thing as 
poor land." — Davenport, Economics of Enter- 
prise, p. 180. Discuss the validity of this state- 
ment. 

9. " The law of diminishing returns presupposes 
no technical changes in method." Show the neces- 
sity for this limitation. 



46 PRODUCTION: LAND 

10. " It is of course true that industry, especially 
agricultural industry, is subject to the law of dimin- 
ishing returns. Nevertheless, history shows very 
plainly that, as population has increased from a few 
millions to more than a billion, the supplying of the 
economic needs of society has become not more dif- 
ficult but much easier." Show that the two state- 
ments are not contradictory. 

11. " If it were not for the law of diminishing re- 
turns, every farmer could get rich simply by doubling 
frequently the outlay on his business." This state- 
ment would not be made by a person who knew ex- 
actly what is meant by the law of diminishing re- 
turns. Explain why. — (T.) 

12. " The formation of boys' corn clubs is an 
excellent thing. Some of the boys who belong to 
these clubs have, by devoting their time to a single 
acre, raised upon it as much as two hundred bushels 
of corn. This sort of intensive cultivation shows 
the possibilities of American agriculture, and should 
be encouraged." 

a. Under what conditions is intensive agriculture 
economical? 

b. Is America in position to practice intensive 
agriculture ? 

c. What fundamental economic law is overlooked 
in the above question? — T. 



VIII. 
PRODUCTION: LABOR. 

1. Is the effort of the following to be called labor: 
(a) a teacher; (b) a college football player; (c) a 
professional baseball player; (d) an opera singer; 
(e) a preacher; (/) a Sunday School teacher; (g) 
a United States Senator? 

2. Define the economic term labor. 

3. What do you understand by the expression: 
" the cost of labor expressed in human terms "? 

4. Is any labor pleasant? Is a large degree of 
it pleasant? Should it all be pleasant if possible? 
What kind is most pleasant? Least pleasant? Is 
the pleasure to be derived from work conditioned 
upon the aptitude of the worker for his particular 
work? If the worker feels that his work is worth 
while, will he derive more pleasure from it than if 
he regards it as only a means of getting an income? 

5. " We must seek to make labor more efficient." 
" We must strive to have the largest sum total 

47 



48 PRODUCTION: LABOR 

of human satisfaction. This may call for less rather 
than for more work, — for less, rather than more, 
high-speed efficiency." 

a. What possible difference in viewpoint is indi- 
cated by these statements? 

b. With which viewpoint are you most in sym- 
pathy ? 

c. May the two statements be reconciled? Ex- 
plain. 

6. " Specialization is necessary to a high degree 
of efficiency." 

a. Enumerate the many advantages of having 
each person engage at some one task. Are there any 
disadvantages in such a procedure? Explain. 

b. Show that the degree to which one can devote 
himself to some one occupation depends upon the 
extent of the market, and that the degree to which 
one can devote himself to some one task within an 
industry depends upon the size of the plant. Does 
the size of the plant depend upon the extent of the 
market ? 

c. May we expect more or less specialization in 
the future than we have now? Explain. 

7. " The steam engine theory of the efficiency of 
labor maintains, or perhaps implies rather than 
maintains, that the vigor of the laborer is in pro- 



PRODUCTION: LABOR 49 

portion to what he consumes." — Taussig, Principles 
of Economics, p. 97. 

a. Evaluate this theory. 

b. So far as it is true, what bearing has it on the 
minimum-wage proposal? Explain. 

8. " Opportunity to rise has been a wonderful 
stimulant to young America." 

a. Explain what is meant. Do you agree? 

b. Are opportunities becoming fewer? Explain. 

c. If opportunities to rise are becoming fewer, 
how will the efficiency of labor be affected? 

g. " I condemn the present system of industry on 
the same grounds that I condemn slavery, — it makes 
the laborer inefficient. Our factory labor, for ex- 
ample, is grossly inefficient." — A university in- 
structor. 

a. Why do so many factory workers refuse to do 
their best work? 

b. Suggest ways of increasing the efficiency of 
industrial workers. 

10. Does compulsory industrial insurance tend to 
affect the efficiency of labor? Explain. 

11. "A display of wealth by the employer's wife 
may reasonably be expected to decrease the efficiency 
of the workmen." 



50 PRODUCTION: LABOR 

a. Justify this statement. 

b. Is this statement indicative of a general con- 
dition that tends to impair the efficiency of " wage- 
workers "? Of other employees? 



IX. 
PRODUCTION : CAPITAL. 

1. Does labor ever produce without the aid of 
tools? Give illustrations. 

2. " The capitalistic method is a roundabout 
method." 

a. Suggest a direct method of catching fish. 

b. Suggest a roundabout method. 

c. Why is the roundabout method more efficient? 

3. " A tool involves two costs — labor cost and 
the cost of waiting." Illustrate. 

4. How is saving, or waiting, involved in the 
building of a house? In the buying of a house? 

5. What is the " human cost " of having capital? 
Does this help to explain interest? How? 

6. " His strength is his capital." Is capital here 
used in accordance with the economic definition of 
capital? 

51 



52 PRODUCTION: CAPITAL 

7. Give examples of fixed capital; of circulating 
capital; of specialized capital; of free capital. 

8. There are two farm communities, one of which 
saves, postpones consumption, and devotes energy 
and products to the production of capital goods, 
while the other uses productive energy to provide 
mainly consumption goods. 

a. Which of these two will become the stronger? 

b. If a similar difference in economic policy pre- 
vails in the case of the inhabitants of two nations, 
which nation will be the more likely to survive the 
other? Explain. 

9. " The end of economic activity is the consump- 
tion of economic goods." Then why insist upon the 
producing of production rather than consumption 
goods? Answer. 

10. Has the automobile increased or decreased the 
amount of capital compared to what it would have 
been without it? Argue both affirmatively and nega- 
tively. If it is restricting the building of capital, is 
its existence necessarily regrettable in view of the 
purpose of economic activity? Explain. 

11. "The American people are very wasteful. 
They spend large sums each year on tobacco, liquor, 
candy, ice-cream, et cetera." 



PRODUCTION: CAPITAL 53 

a. Do we as a people have less capital than we 
would have if we didn't indulge so freely in these 
things? Explain. 

b. If the use of these things represents a national 
loss, does the loss occur when the consumer buys 
them or at some other time? Explain. 

12. Explain in what way the following contribute 
to the efficient performance of the capitalistic func- 
tion: 

a. Postal savings banks. 

b. Commercial banks. 

c. Stocks and bonds of small denominations. 

d. An open stock market for the buying and sell- 
ing of securities. 



PRODUCTION: ENTERPRISE. 

1. a. Is the function of the enterpriser separate 
and distinct from that of the laborer, capitalist, and 
landlord? 

b. Just what is his function? 

c. Must he have a separate reward as enterpriser? 
What is this called? 

d. Can there be economic enterprise without an 
enterpriser? 

2. A, being without available funds, borrows 
$1,000 from his uncle to start a grocery store. Who 
is the enterpriser? What is the economic function 
of the other? 

3. " In plants wherein the workingmen own the 
business, the place of the entrepreneur (enterpriser) 
is taken by a manager elected by the workmen." 
What is the fault in this statement? — T. 

4. " To be an enterpriser it is not necessary that 
a man be enterprising." Explain. — P. 

54 



PRODUCTION: ENTERPRISE 55 

5. Why do we say that every stockholder of a 
corporation is an element in the corporate enter- 
priser, while a bondholder, who also has capital in 
the concern, is not? — T. 

6. If you were a grocery clerk receiving a salary 
of $1,200 per year and an assured income of $250 
from $5,000 which you possess, should you consent 
to put your money ($5,000) into the business and be- 
come a partner if you felt reasonably certain of hav- 
ing only about $1,450 as your yearly share of the 
returns from the store? On the basis of your an- 
swer formulate general principles in regard to the 
economic function and the economic reward of the 
enterpriser. Is it possible that other than economic 
motives might influence your decision in this case? 
Explain. 

7. Not many years ago Mr. W., after some 
months of painstaking negotiation, induced a num- 
ber of persons owning certain lands on the Copper 
Range to join with him in organizing a corporation 
to build a railroad, open mines, etc., — Mr. W. put- 
ting in some land of his own. For his fee, Mr. W. 
was to receive a certain number of shares in the 
stock of the company. Distinguish with explana- 
tions the economic roles played by Mr. W. in this 
matter.— T. 



XL 

PRODUCTION: PRODUCTIVE EFFICIENCY. 

A. Co-operation — Specialization. 

1. " Specialization is now carried to a far greater 
degree than it was one hundred, or even fifty, years 
ago." 

a. What inventions have made this possible? 

b. What advantages have accrued? What disad- 
vantages ? 

c. What has been the moving force in extending 
specialization? 

d. Do you expect that it will be carried still fur- 
ther? 

2. " It is upon the seacoast, and along the banks 
of navigable rivers, that industry of every kind nat- 
urally begins to subdivide and improve itself." — 
Adam Smith, The Wealth of Nations, Bk. 1, ch. 3. 
Account for this fact. 

3. " The farmer should sell his produce direct to 
the consumer and thus eliminate the parasitic mid- 
dleman." 

56 



PRODUCTIVE EFFICIENCY 57 

a. Point out the advantages to the farmer of 
selling to the middleman. 

b. If farmers gain by selling to middlemen, are 
the middlemen parasitic? 

c. What does the term parasitic mean in eco- 
nomics ? 

4. " One should not depend upon others for that 
which is necessary to his very existence." Do you 
agree? Mention some worker who depends upon 
others for everything that he consumes. Is he wise 
or foolish in doing this? 

5. " Only foreign trade can enrich a nation. 
Trade between sections of the country cannot add 
to national wealth." 

a. Show that your state is increasing its wealth 
by trading with other sections of the country. 

b. Is there any real difference as to the economic 
gain from internal trade and that from foreign 
trade?— (T.) 

6. " The explanation of the fact that foreign 
commerce has played such a small part in the busi- 
ness of the American people (normally about one 
per cent) is no doubt that our own country has of- 
fered a market so big that it was unnecessary, in 
most cases, to seek an outlet for goods elsewhere." — 



58 PRODUCTIVE EFFICIENCY 

The Annalist^ Jan. 17, 1916, p. 85. This explana- 
tion is, at best, insufficient ; give something better. 

7. " It is a shame that we must depend upon for- 
eign co-operation for any good. We should produce 
what we want or go without." 

a. Do you consider it discreditable to us to rely 
upon the foreigner for certain products? Explain. 

b. Some are disposed to see in world-wide co- 
operation a force making for the spiritual unity of 
all peoples. Give reasons for this view. 

8. Suppose our foreign market showed a per- 
manent new shrinkage of 200 millions of dollars per 
annum, would this mean that our yearly income 
would be 200 millions smaller? State the loss in gen- 
eral terms. — (T.) 

9. From the Congressional Record for May 17, 
1909: 

"Mr. Aldrich: Assuming that the prices fixed by 
the reports is the correct one, if it costs ten cents 
to produce a razor in Germany and twenty cents in 
the United States, it will require one hundred per 
cent duty to equalize the conditions in the two coun- 
tries. . . . And, so far as I am concerned, I shall 
have no hesitancy in voting for a duty which will 
equalize the conditions. ... I would vote for three 



PRODUCTIVE EFFICIENCY 59 

hundred per cent as cheerfully as I would for fifty." 
To what sort of an economic system would such no- 
tions, if logically carried out, inevitably lead? — T. 

10. Do political considerations influence the ques- 
tion as to the advisability of national specializa- 
tion? What illustration from our history bears on 
this question? 

11. "The European war has demonstrated the 
advisability of having our own merchant marine." 

a. Give supporting argument. 

b. Argue that the value of having ships in an 
emergency such as that caused by the European 
war, does not warrant our subsidizing a merchant 
marine. 

12. " Our varied natural resources have made us 
tolerant of the protective tariff policy." Explain. 

B. Large Scale Production. 

13. Make a detailed list of the economies that 
would result from a combination of three grocery 
stores into one store. 

14. If you were to manufacture men's collars, 
what advantages should you expect to derive from 
large scale, rather than small scale, production? 



60 PRODUCTIVE EFFICIENCY 

15. " Particular cases of extensive advertising 
prove to be of no cost to anyone, due to the eco- 
nomics of large scale production." Develop an argu- 
ment, using illustrations, to support this statement. 

16. Are principles of large scale production ap- 
plicable to portrait painting? To photography? 
To tailoring? To the making of kitchen knives? 

17. " It has been learned by the experience of 
business men that when the individual plant passes 
beyond a certain size, it ceases to gain in efficiency." 
Durand, The Trust Problem, p. 69. Why should 
you expect this to be true? 

18. List the disadvantages of large scale produc- 
tion from the standpoint of the consumer; from the 
standpoint of the workers ; from the standpoint of 
society generally. 

C. Combination of Industrial Factors. 

19. " The efficient business man pays close atten- 
tion to overhead expense." Explain meaning. 

20. "We can pay only $1.20 for an eight-hour 
day, but we will pay thirty cents additional for a 
nine-hour day." Illustrate concretely how the en- 



PRODUCTIVE EFFICIENCY 61 

terpriser is able to pay twice as much per hour for 
the ninth hour as for the eight hours. 



21. The principle involved in the above problem 
can be used to explain the use of rebates and other 
forms of discrimination by the railroads in an effort 
to increase traffic. Explain. 

22. From data in the table in section VII, ar- 
range a table for combinations 9-14, including col- 
umns I-IV as in the table and on the basis of a cost 
of $2 per A and $5 per B, construct columns as 
follows : 

V, average cost; VI, added cost; VII, total selling 
price at fifty cents ; VIII, added selling price at 
fifty cents; IX, profit; X, total selling price at 
$.4135; XI, added selling price at $.4135; XII, 
profit. From data in this constructed table, answer 
the following questions : 

a. Which combination gives the least cost per 
unit ? 

b. For the combinations given, the plant is in the 

state of dimming returns 5 from 9 to 11 the costs 

per unit grease beyond 11 they {"crease Ma k e 

r decrease, J J decrease. 

proper erasure. 

c. If the product were selling at fifty cents per 
unit, which combination would you use? What 



62 PRODUCTIVE EFFICIENCY 

would be your average cost? If A's can be in- 
creased, will it be more profitable to increase A's 
with B's so as to maintain combination 11, or to 
increase B's alone? 

d. With the costs for A and B as given, what 
price will come to prevail under free competition? 
What will be the social significance of this price? 

e. Show that the per cent of profit received is no 
indication as to whether the plant is in the stage 
of diminishing returns or in some other stage. 

23. Which is relatively the more expensive, the 
coal or the furnace used in heating a house? Should 
one plan to buy a furnace that will normally be 
worked in a combination near the beginning of 
diminishing returns or near the point of maximum 
returns? Why is the word normally used? 

24. " When I build my house I shall put in two 
furnaces, a large one for cold weather, and a small 
one for mild weather." 

a. Argue that this would be a wise plan if one 
lives where the winters are long. How do the length 
of the winters affect the problem? 

b. Can you think of any condition in industry 
that is analogous to this case? 

25. Are industrial plants likely to be in the stage 
of diminishing returns, or increasing returns, 



PRODUCTIVE EFFICIENCY 63 

during boom times? During periods of depres- 
sion?— (T.) 

26. Show that the problem of the combination of 
factors is involved in determining the height of office 
buildings. — (C.) 



XII. 
PRODUCTION: FORMS OF ORGANIZATION. 

1. If you were planning (1) to write a book, (2) 
to practice law, (3) to open a bookstore, or, (4) to 
manufacture threshing machines, what advantages, 
or disadvantages, would come (a) from forming a 
partnership; (6) from organizing a corporation? 

2. " Since all the profits of a corporation go to 
the stockholders, it is unfair that debts beyond cor- 
porate value should fall upon creditors; I object, 
therefore, to the limited liability of the corpora- 
tion." Should you favor legislation making stock- 
holders liable for all debts contracted by the cor- 
poration? Discuss fully. 

3. " I weigh my words, when I say that in my 
judgment the limited liability corporation is the 
greatest single discovery of modern times, whether 
you judge it by its social, by its ethical, by its indus- 
trial, or in the long run, — after we understand it 
and know how to use it, — by its political effects." — 
President Butler, quoted in Proceedings of 

64 



FORMS OF ORGANIZATION 65 

The National Taw Conference, 1912, p. 187. Sug- 
gest reasons for this view of the corporation. 

4. Are the economic advantages of corporate or- 
ganization enhanced by the fact that shares of stock 
sell for about $100 and always have a ready market 
on the stock exchange? Explain. 

5. " The inflation of the capitalization of a cor- 
poration is called stock watering." 

a. Why should stockholders wish to increase the 
nominal capital of the corporation? 

b. Account for the term stock watering. 

c. How does the public suffer from stock water- 
ing in the case of public service corporations? 

6. "To sell out (dispose of stock) when the af- 
fairs of a corporation are going badly, to buy in 
when they are going well, is the height of business 
acumen." — Taussig, Principles of Economics, p. 92. 

a. Is this condition at all undesirable? Explain. 

b. What general advantage results from this pro- 
cedure? 

c. What institution makes such procedure pos- 
sible ? 

7. " One result of the corporate organization of 
industry is that many persons who loan capital have 



66 FORMS OF ORGANIZATION 

no control over the use made of it, or over the treat- 
ment given to the employees whose employment it 
makes possible." 

a. Explain why this is true. 

b. Discuss the advantages and the disadvan- 
tages of the situation. 

c. Can you suggest any remedies tending to cor- 
rect the disadvantages? Would the sale of the stock 
of " bad " corporations by righteous owners be a 
corrective measure? Discuss fully. 

8. Why have industrial conditions since, rather 
than before, the industrial revolution, stimulated the 
growth of corporations? 



XIII. 
SOME SPECIAL CASES OF PRODUCTION. 
A. Speculation. 

(1) Produce Speculation. 

1. Is the risk of price fluctuation greater or less 
than formerly? 

2. " Every man who buys a good to sell again is 
a speculator." Is this true? 

3. Is it economical to society to have a separate 
speculating class? 

4. " Speculation is the taking of necessary risks ; 
gambling is the taking of unnecessary risks." Illus- 
trate the truth of both parts of this statement. — T. 

5. A miller buys 10,000 bushels of wheat in Octo- 
ber at $1 per bushel and expects to sell the flour in 
December at the price then prevailing. If the price 
of wheat should rise and cause a rise in the price 

67 



68 SPECIAL CASES OF PRODUCTION 

of flour, he will gain, but if the price should fall he 
will lose. He does not wish to bear the risk of the 
loss. 

a. Who will bear this risk for him? How will 
this other person be recompensed for doing this? 
By just what process will this second person assume 
the risk? Is it socially worth while to have a special 
class of persons who will assume these risks? 

b. If October wheat is $1 and the cost of carry- 
ing wheat until December is three cents per bushel, 
then December wheat will be worth $1.03 in October. 
If the miller sells short for December at the time he 
buys the wheat he is to grind, his account will stand 
as follows : 

Wheat for Milling 

10,000 bushels at $1 $10,000 

Storage, insurance, etc., two months, 3c 300 

Total cost $10,300 

Future, or Short Sale 

10,000 bushels to be delivered in December at 
$1.03 $10,300 

Total selling price of short sale $10,300 

If the price is $1 in December, how much will the 
miller lose on his flour due to the fact that the price 
of wheat is $1 rather than $1.03 as expected? But 
as he can buy wheat at $1, to be delivered at $1.03, 



SPECIAL CASES OF PRODUCTION 69 

he will make what sum on his short sale? Do his 
loss and gain balance? If so, how does he make any 
money ? 

c. Assume price to have risen to $1.08 in Decem- 
ber and compute the miller's gain or loss on each 
transaction? 

d. Why use the term " selling short "?— (T.) 

6. Argue that wheat speculation, as illustrated 
here, tends to lower the price of flour. 

7. Consult the daily paper and find the price of 
wheat to-day. What is the price of futures? 

8. A manufacturer of cotton goods buys raw ma- 
terial in February. He expects to have the goods 
ready for market in May. How can he escape the 
risk of losing through a decrease in the price of 
cotton if he is unable to sell the goods in advance? 
Illustrate. 

9. Taylor says that the chief functions of specu- 
lation in produce are: (1) to establish proper price; 
(2) to secure the bearing of the risk burden of 
ownership in the easiest and cheapest way? Show 
how each of these ends is secured. 

(2) Speculative Trading in Stocks and Bonds. 

10. " The buying and selling of stocks and bonds 
encourages the investment of capital." Show that 
this is true for two reasons. 



70 SPECIAL CASES OF PRODUCTION 

11. " The function of enterpriser can be efficiently 
performed only in case capital is available." 

a. Support this statement. 

b. Does the stock market help to make capital 
available? Explain. 

12. " The efficiency of the corporation as a factor 
in production is greatly enhanced by the existence of 
the stock market." By a hypothetical case, show 
that this statement is true. 

13. " We have borrowed an enormous sum of 
capital from abroad during our history." 

a. In what form have we imported this capital? 

b. How have the loans been negotiated? 

c. How have the debts been paid when payment 
was desired? 

14. Note the prices of the various securities 
listed in the daily papers. Why are there such dif- 
ferences in the prices of securities? 

15. What are some of the evils of stock specula- 
tion? Can you suggest corrective remedies? 

B. Insurance. 

16. " Insurance eliminates risks." Is this true? 
Do fire insurance companies prevent fire? Do they 



SPECIAL CASES OF PRODUCTION 71 

prevent fire losses to individuals? Just what is their 
function ? 



17. Is insurance a cost of production? Does it 
encourage production? Is an insurance company a 
producer? 

18. " No, that building that just burned was not 
insured. I have not insured a building for seven 
years." — A successful farmer. Why doesn't he in- 
sure his buildings? Why do you suppose he stopped 
insuring them at the time he did rather than earlier? 



XIV. 
PRODUCTION AND DISTRIBUTION. 

1. What does the word distribution mean as it is 
commonly used by business men? What does the 
economist mean by distribution? 

2. Through what doors are the products of our 
industry distributed, that is, what are the shares in 
distribution? Are the two processes, production and 
distribution, separate and distinct? Do not forget 
to explain. 

3. " Distribution is determined by the prices that 
are set upon the production factors." Explain. 

4. Is the subject of distribution of wealth more 
important to-day than it was at the time of the 
industrial revolution? If so, explain why. 

5. What Seager calls wages of management is 
often called enterprisers' profits. It may be urged 
that the income in question is not wages and is not 
paid for management. Argue for and against 
Seager's use of the term. 

72 



PRODUCTION AND DISTRIBUTION 73 

6. " Taxes do not represent a share in distribu- 
tion but only a deduction from the rent, wages, inter- 
est, and profit which would otherwise remain with 
individuals." Do you agree? Explain. 

7. " Opposed to the fact that fully nine-tenths 
of the products of current industry are not in con- 
sumable form is the equally certain fact that prac- 
tically the entire money income is spent for goods 
that are ready for consumption." — Seager, p. 180. 

a. What part of the productive effort that is 
spent in producing bread is spent upon the day that 
the bread is purchased for consumption? About 
what is the remotest date at which any of that effort 
was performed? 

b. Answer similar questions in regard to coffee. 

c. Suggest an article where production is com- 
pleted in one day. 

d. Can it be said that producers of to-day receive 
their pay in goods produced largely in the past? 
Illustrate. If producers are paid largely in past 
products, do they get an equivalent of what they pro- 
duce inasmuch as production methods are constantly 
becoming more efficient? 

8. What is the problem of distribution? How 
does your author answer it? 



XV. 
DISTRIBUTION: RENT. 

A. The Nature and Origin of Land Rent. 

i. " Rent is the price paid for the use of land." 

a. What determines the rent that tenants pay 
for agricultural land? 

b. What determines the rent that is paid for 
city lots for business purposes? For residence 
sites ? 

2. " Rent is due to the fact that price of product 
rises above the cost of production, including neces- 
sary profit. " 

a. Argue in support of this statement. 

b. Why does the price of agricultural products 
rise above the cost of producing them? 

c. Then, why does rent exist? 

3. " Price rose from thirty cents to forty cents 
per bushel, thus making it possible to farm poorer 
land, and, as a result of farming the poorer land, 
rent emerged on the best, or thirty-cent land." 
Criticise this statement. — (T.) 

74 



DISTRIBUTION: RENT 75 

4. " Rent is measured by the method of differ- 
ences, starting from the no-rent land margin and 
proceeding from grade to grade until the best and 
most favorably situated lot for the purpose that is 
economically most important is reached." — Seager, 
p. 241. 

a. Is it necessary to have no-rent land in order 
to have rent? 

b. Rent can be measured as suggested in this 
quotation only in case a certain condition maintains. 
What is this condition? 

5. What influence do you expect that the re- 
frigerator car has had upon rent? The automo- 
bile? The telephone? 

6. If a subway should be constructed in a large 
city, what effect should you expect this to have 
upon the rent of land (1) in the downtown business 
district, (2) in the residence district adjacent to the 
downtown business district, (3) in the outlying busi- 
ness district, (4) in the outlying residence district? 

B. The Relation of Rent and Selling Price. 

7. a. If a tract of land is bearing $400 rent and 
men are satisfied with five per cent income from land, 
what price will be set on this tract? What price if 
the rate of capitalization is three per cent? 



76 DISTRIBUTION: RENT 

b. If this land is expected to bear $500 rent five 
years from now and $600 ten years from now, will 
this affect the market price of the land? In terms 
of interest earnings, what effect will an expected 
increase in rent have upon land income? 

8. If a residence rents for $40, how could you 
determine the probable market value of the lot? 

9. A certain piece of land yields twenty bushels 
of wheat per acre, the expenditure per acre being 
$10. With land on the margin of cultivation yield- 
ing ten bushels for the same expenditure, and with 
the rate of capitalization five per cent, what value 
would an acre of the twenty-bushel land tend to have 
when there was a tax on it equal to eighty per cent 
of the rent? Put down in your answer each step in 
the solution, and explain fully. — T. 

10. " The price of land has risen recently, so the 
landowners are demanding more rent." Is this rea- 
sonable ? Explain. 

C. The Social Aspect of Rent. 

11. "As, with increasing population, there falls 
out, per capita, a smaller product in society to be 
divided, there goes to the landlords a larger and 



DISTRIBUTION: RENT 77 

larger proportion of this more and more tragically 
inadequate total. The landlords gain by the general 
ill-fortune. Those classes disinherited of land are 
doomed to a double and compounded pressure of ad- 
versity. The land famine smites them with both 
edges of its sword." — Davenport, Economics of En- 
terprise, p. 180. Illustrate this contention by re- 
ferring to the table of combining proportions in 
section VII. What are the two edges of the sword? 

12. Argue that under government ownership of 
land justice would require that rent be charged for 
residence sites so soon as two persons came to desire 
the same site. Is it probable that there could be a 
community in which two or more persons would not 
desire the same site? 

13. Is it wise to have private ownership of land? 
If so, can we safely take all the rent from the owners 
by imposing taxes equal to the rent? Can we safely 
take part of it? Discuss fully. 

14. Is there a particular reason why the rent due 
to public improvement should be taxed into the public 
treasury? Explain. 

15. If the state owned all the land, could indi- 
viduals secure land more easily than they can to- 
day ? Explain. 



78 DISTRIBUTION: RENT 

16. Suppose that I own a farm in Ohio and rent 
it for cash rent of $500 per year. Do I earn the 
$500? Does the tenant earn it? Who does earn it? 
Why?— P. 

17. Do you expect that rent will increase or de- 
crease in the United States? Explain. Which sec- 
tions do you expect to show an increase in rent rela- 
tive to other sections? 



XVI. 
DISTRIBUTION: WAGES. 

A. The Determination of Wages. 

1. "An industrial society in which certain per- 
sons are paid $500 per day while thousands of their 
brothers are paid only $2 per day is indefensible." 
Do you agree? Discuss fully. 

2. Assume a community in which the raising of 
corn is the main industry. 

a. What will determine the wages in corn that 
rival farmers will pay? Will this increase or decrease 
as population increases? Will the farmers be forced 
to pay all that they can pay? Is it possible that 
certain farmers could afford to pay more than the 
established wage for the quantity produced? Ex- 
plain. 

b. How would wages be affected: (1) if the meth- 
ods of raising corn should be improved; (2) if im- 
proved transportation facilities should make more 
corn land available; (3) if gold should be discovered 
in adjacent territory? 

79 



80 DISTRIBUTION: WAGES 

3. Why are wages higher in Montana than in 
Georgia? 

4. " Women are paid less than men for similar 
work." Explain. 

5. " The economists teach that free bargaining 
between capital and labor will give the laborer just 
or reasonable wages." Show that the economists do 
not teach that free bargaining, but rather that some 
other force, will give just wages. — (T.) 

6. " We should establish a minimum wage of $6 
per day for all workers." 

a. Give an argument in opposition to this pro- 
posal. 

b. Argue in favor of minimum-wage legislation. 

7. " The employer's interest is in money wages ; 
the laborer's interest is in real wages." Discuss. 

8. In defending the organization of trusts, and 
the consequent restraint of competition, an argument 
like this is sometimes used : " Competition in the sale 
of goods so reduces prices that it is impossible to 
pay fair wages to the workman." Defend the con- 
tention that the competition which tends to reduce 
the prices also tends to raise wages. — T. 



DISTRIBUTION: WAGES 81 

g. " If you are an American wage-worker using 
modern machinery in an up-to-date plant, you pro- 
duce each day goods that sell at retail for at least 
$10. But you don't get the $10; you get, on an 
average, about $2; somebody else gets the $8." — 
Chas. H. Kerr, in a socialist pamphlet. Show that, 
if the wage-worker in question did get the whole 
$10, he would be cheating some other wage-worker 
as well as some non-wage workers. — T. 

TO. " Wages are apt to be fixed much closer to 
the minimum which the laborer will take than the 
maximum which the employer will pay; for the lat- 
ter has much more skill and strength in bargain- 
ing." Construct a demand and supply schedule ac- 
cording to which employers will pay $5 per day for 
100,000 days' labor and employees will take $1.50 
per day for that amount of labor. Show that it is 
possible that the wage may be set at $5. Is it 
probable that it will be nearer $5 or $1.50?— (T). 

II. " The capitalists own the tools of production 
and can thus force the workman to take any wage, 
since labor cannot work without tools." 

a. Do you agree? Discuss. 

b. Turn the quotation about so that the laborers 
will appear able to dictate the wage. — (T.) 



82 DISTRIBUTION: WAGES 

12. Why do surgeons receive incomes that are 
greatly in excess of incomes received by physicians? 

13. " Men love to excel at difficult and important 
tasks. The instinct of workmanship and social pres- 
tige will hold them to the socially important work. 
Differences in financial remuneration are not neces- 
sary." Do you agree? If not, do you believe that 
there is any merit in this contention? Discuss 
fully. 

14. If you were to go into a community as a 
dentist, what would determine the prices that you 
would set upon your services? Would you be at all 
influenced by the fact that there were, or were not, 
other dentists in this community? Explain. 

15. " Competition is not effective in determining 
physician's fees, else the fees would be lowered, as 
competition is very keen." 

a. Account for the fact, assuming it to be true, 
that physicians' fees are not lowered by competition. 

b. Argue that large fees result in competition 
which reduces income, although it does not reduce 
particular fees. 

c. Is the condition suggested in b in accordance 
with principles of social economy? Explain. 

16. a. Does special educational training for a 
few increase the wages of these few? Why? 



DISTRIBUTION: WAGES 83 

b. Would equivalent education for all lower the 
wages of the " few "? 

c. Would such education for all increase general 
wages over what they would otherwise be? Why? 

B. Wages and the Standard of Living. 

17. " There is a vital connection between the 
population question and the wages question." Dis- 
cuss. 

18. " No remedies for low wages have the small- 
est chance of being efficacious, which do not operate 
on and through the minds and habits of the people." 
— Mill. Argue for the truth of this statement. 
(It probably needs qualification; but leave that for 
some other occasion.) — T. 

19. " The standard of living keeps wages up." 

" How so? Men must work for what they can get. 
Their standard of living will not enable employers 
to pay them more than the competitive wage." 
Does the point made in the second quotation dis- 
prove the position taken in the first? Explain. 

20. Are the wages of teachers determined by 
their standard of living, or is their standard of liv- 
ing determined by their wages? Discuss. 



84 DISTRIBUTION: WAGES 

21. Is the " long time " concept vital in the con- 
sideration of the wage and standard of living prob- 
lem? Explain. 

C. Employment. 

22. According to a principle formulated by J. B. 
Say (Say's Law), the goods and services which are 
offered on the market constitute the demand for 
other goods and services. 

a. Show that the farmer's demand is conditioned 
by his supply ; the manufacturer's ; the musician's. 

b. Then what must be the effect upon employment 
of the destruction of goods? Of extravagant con- 
sumption ? 

23. " The spring snowfall was a great blessing to 
labor, for the city had to employ a large number of 
men to remove the snow from the streets." — A news 
item. 

a. Did this benefit certain laborers? 

b. Was it a benefit to laborers generally? 

24. " A store burned in our town and relieved the 
unemployment situation. It was a blessing to the 
laboring man." Illustrate concretely how certain la- 
borers may be expected to have lost because of this 
fire. 



DISTRIBUTION: WAGES 85 

25. Mr. A., having earned and saved $10,000, 
throws it into the sea. Another, having earned and 
saved $10,000, spends it on a great banquet. Which 
makes the greater demand for products? Explain. 
— T. 

26. " The college professor's wife who makes her 
own dress is unfair to those persons who must work 
for a living." Criticise. 

27. Minnesota labor unions petitioned the 1915 
legislature to defeat the county option liquor bill on 
the ground that the closing of the saloons and brew- 
eries would throw a great number of men out of work. 
Discuss the probable effect of prohibition on em- 
ployment. 

28. " Prison labor should be devoted to road 
building and thus not brought into competition with 
free and honest labor." Argue that it is to the ad- 
vantage of free labor to have prison labor produce 
as many goods as possible. — (T.) 



XVII. 
DISTRIBUTION: INTEREST. 

A. The Nature of Interest. 

1. " Saving, or abstinence, is necessary to the 
existence of capital." Is this true? Could Robinson 
Crusoe have a fish-net without saving or abstinence? 
-(T.) 

2. The interest problem is : Why does capital 
yield an excess over replacement? That is, why 
does a tool give a product that is more valuable than 
the tool? The problem is answered by answering 
the question: Why do we not have so many tools 
that the value of the product declines to the value 
of the tool? 

a. Answer the last question. 

b. Show that this answer is an answer to the 
second question, and that the second is only a re- 
statement of the first. 

3. " It does not follow from the fact that capital- 
istic methods yield a physical product in excess of 

86 



DISTRIBUTION: INTEREST 87 

non-capitalistic methods that interest will exist." 
Why not? Under what conditions may we have 
necessary things without paying for them? Under 
what conditions would we need to pay only the labor 
cost (no interest) for axes? 

4. a. Assume a communistic society and show 
that justice would require that the persons request- 
ing wine at the common store house in exchange for 
certain claim checks should be given a smaller quan- 
tity than is given in grape juice to persons presenting 
similar claim checks. 

b. Show that in a socialistic society certain prod- 
ucts will require equipment that will involve more 
waiting than is required for other products. Show 
that the persons using the products involving wait- 
ing should, in justice, pay more than the labor costs 
involved.— (T.) 

5. Interest is either explicit or implicit. Explicit 
interest is manifested in loan contracts. Implicit in- 
terest is manifested in the prices paid for goods or 
for the use of goods. For example : 

a. A producible good sells for a price higher 
than its costs in other goods and labor. 

b. A produced good hires, or rents, for a price 
more than sufficient to return, in time, the capital 
value of the good. 



88 DISTRIBUTION: INTEREST 

c. A non-producible income-bearing good sells 
for a price lower than the sum of the expected in- 
comes. 

Illustrate each of these three cases of implicit in- 
terest.— (T.) 

6. a. Under what conditions would you pay in- 
terest for consumption purposes? For production 
purposes ? 

b. Why is not the amount available for borrowers 
so abundant that they need not pay for its use? 

c. What do lenders sacrifice in loaning? Under 
what conditions would you loan gratuitously? At 
the normal rate of interest? Only at an excessive 
rate, say twenty-five per cent? 

B. The Rate of Interest. 

7. How much more efficient are the present highly 
capitalistic methods of grinding flour in Minneapolis 
than were the Indian methods that used to prevail 
in that locality? Estimate roughly the interest rate 
that we could afford to pay for milling capital rather 
than go without it? What is paid? How do you 
account for this difference? 

8. " It is foolish to insist that interest must be 
paid because of the sacrifice of saving when many 



DISTRIBUTION: INTEREST 89 

men, like Rockefeller and Carnegie, cannot help sav- 
ing. It would be, not only much more burdensome, 
but impossible for them to consume their incomes." 
Discuss this statement. — (T.) 

9. " The pure interest rate tends to be the same 
in all lines of industry." 

a. What is meant by the " pure interest rate "? 

b. Accepting the statement as true, how do you 
account for the differences in the rates of income 
earned in different industries? 

10. The present interest rate is about six per 
cent in Minnesota, while it is twelve per cent in Al- 
berta. How do you account for this? 

11. Since capital and labor may, to some degree, 
be substituted for each other, what may be said to 
be the economic relation between capital and labor, 
if a wage of $2.50 per day and an interest rate of 
five per cent tend to be established at the same time? 

12. High wages tend to cause an increase in the 
interest rate. Explain. 

13. " The rate of interest tends to represent at 
once the productivity of capital and the disutility of 
supplying capital." Assuming the statement to be 
true, show by just what process this is brought about. 



90 DISTRIBUTION: INTEREST 

14. If the cost of building a mile of macadam 
road is $6,500, a mile of concrete road $12,000, and 
a mile of brick road $18,000; and if the annual cost 
per mile of keeping the roads in good repair is $600 
for the macadam road, $300 for the concrete, and 
$50 for the brick, which road will be the most eco- 
nomical when the current rate of interest is two per 
cent? When it is four per cent? Five per cent? 
Six per cent? Ten per cent? — (P.) 



XVIII. 
DISTRIBUTION: PROFITS. 

1. " Competitive profits (or losses) arise in con- 
sequence of deviations of market from normal 
prices." — Seager, p. 198. 

a. Are profits, then, a cost of production? 

b. If not, how are men paid for enterprise? 

2. Certain economists designate the payment to 
the enterpriser profit rather than wages of man- 
agement. 

a. How would such persons modify the statement 
quoted above? 

b. Are profits regarded as costs by such persons? 

c. Which terminology seems to you to be pref- 
erable ? 

3. a. Give an illustration, preferably from your 
own experience, of an enterpriser's receiving profits 
in excess of the amount necessary to induce him to 
undertake the enterprise. 

b. Of an enterpriser's receiving only sufficient 
profit to induce him to undertake the enterprise. 

91 



92 DISTRIBUTION: PROFITS 

4. What is the relation of trading in futures to 
competitive profits? Of insurance? Explain. 

5. " Pure profit (the payment for taking re- 
sponsibility) involves an infinitesimal element of 
wages." — Taylor. Explain. 

6. " Under free competition the consumer gets 
the benefit of all improvement in method, yet pro- 
ducers are always anxious to take up new methods." 
Explain and illustrate each part of this statement. 
-(T.) 

7. a. Trace the effect of rising prices upon each 
source of income. 

b. The effect of falling prices. 

8. " Profits from a corporate enterprise may be 
concealed by watering the stock." Explain. 

9. a. Would there be risks in production under 
government ownership of industry? If so, would this 
be entered as a cost in the books of the state? 

b. Would profits exist in such a state? 



XIX. 

DISTRIBUTION : MISCELLANEOUS. 

1. " The single-price feature is a necessary com- 
plement to the approved system of distribution under 
any economic order in which there is co-operation and 
in which the shares in distribution first take the form 
of money income." — Taylor, Principles of Eco- 
nomics, 1914, p. 404. Prove that this is true by 
assuming distribution to be (1) incomes in propor- 
tion to needs; (2) incomes in proportion to service; 
(3) equal incomes. 

2. In the light of the above, discuss the principle 
of price-determination implied in the following state- 
ment by a surgeon who found a hospital patient 
weeping because she felt that she could not afford to 
have the recommended operation: "Never mind, the 
lady in the adjoining room will pay your bill." 

3. " The Productivity or Service-Value principle 
of distribution, properly understood, contains no 
promise that an increase in the efficiency of any par- 
ticular factor in production will secure a larger in- 
come of goods in general for the persons supplying 

93 



94 DISTRIBUTION: MISCELLANEOUS 

said factor ; though, of course, such increase in ef- 
ficiency is very desirable from the standpoint of peo- 
ple generally." 

a. Argue for the correctness of the contention set 
forth in the first part of the above quotation. 

b. If that contention is correct, how is it that the 
persons supplying a particular factor are induced to 
try to increase its efficiency? 

c. How is it that people in general profit by the 
increased efficiency of any productive factor? — T. 

4. Suppose that by the draining of swamp lands, 
one-fifth should be added to the tillable soil of the 
country. What effect would it tend to have on 
wages? On profits? On interest? On agricultural 
rent? Explain in each case. — T. 

5. " Labor suffers from an increase of capital and 
land, for such an increase will lower prices of capital 
goods and of land and lead enterprisers to substitute 
these for labor." 

" An increase in the supply of capital or land is 
of advantage to labor, as it gives each laborer more 
tools, or more land, to work with, and hence in- 
creases his product." 

Discuss the relative validity of these statements. 

6. May laborers gain as consumers, even if they 
do not gain as producers, from the introduction of 
improved methods? Explain and illustrate. 



DISTRIBUTION: MISCELLANEOUS 95 

7. " Labor alone should enjoy the products of 
industry, for labor alone is responsible for the prod- 
uct. This is obvious when we realize that if labor 
were not applied all the capital in the world could 
not produce anything." 

a. Does the truth of the last statement prove the 
second clause in the first sentence to be true? What 
logical fallacy is involved in the quotation? 

b. Write an analogue to the above in which labor 
and capital are made to change places. — (T.) 

8. It was generally held by the economists of the 
so-called classical school that, if the methods of pro- 
duction undergo no substantial change while popula- 
tion keeps on increasing, wages, interest, and profits 
will tend to get smaller and smaller and rent (eco- 
nomic rent) to get larger and larger. Show that 
this doctrine is a natural deduction from the theory 
that the shares of labor, waiting, and responsibility- 
taking are determined by their respective marginal 
productivities. — T. 

9. " Broadly speaking, it is not the desert of the 
great singer, or artist, or surgeon, or captain of in- 
dustry which justifies his receiving such exceptionally 
large payment for his services, but rather the welfare 
of people in general." Defend this statement. — T. 



XX. 

MONEY. 

A. The Nature of Money. 

1. What is money? Why have money? Are we 
better off economically when we exchange goods for 
money? Why do we exchange money for goods? Do 
we lose by such exchanges? 

2. " A nation is so much poorer by every dollar 
it sends out, just as an individual is so much poorer 
by every dollar he spends." Criticise both clauses. 
-(T.) 

3. " Foreign trade can add to the national 
wealth only when it brings in a money balance." 

a. What is the principal thing to be gained by 
maintaining trade relations with the outside world? 

b. When would it be of advantage to have our 
foreign trade bring in a money balance? 

c. What idea does the person quoted appear to 
have as to the relative values of economic goods? 
-(T.) 

96 



MONEY 97 

4. " I don't see that society as a whole loses any- 
thing by the giving of a fireworks exhibition costing 
$1,000. Of course, the people who pay for the fire- 
works are just so much out. But then the $1,000 
goes to the other people who furnish the fireworks ; 
so that society as a whole comes out even." Criti- 
cise.— T. 



5. " The only justification I can see for the lux- 
urious expenditure of the idle rich is that money is 
put in circulation — other folks have a chance to get 
hold of the idle hoard." — A university professor. 
Discuss the issue raised. 

6. " The Russian Government is expending $12,- 
000,000 a year on new aeroplanes, and although these 
may never be needed in war, the money will not be 
wholly wasted, for all the machinery is to be designed 
and constructed in Russia." — Editorial, The Inde- 
pendent, April 13, 1914. Discuss the economic 
principle involved. 

7. " That proportion of the money received from 
the bonds (sold by European governments to finance 
the present war), which is spent in the home coun- 
try, is not all wasted, but there is no getting back 
the money which is spent in the United States or 



98 MONEY 

other lands. For this reason, Germany is in better 
financial condition to-day than any of the other bel- 
ligerents. Her dealing has all been among her own 
people." — Roger W. Babson, in Daily News, Au- 
gust 1, 1915. 

a. Are the allies following a sound policy in buy- 
ing goods and ammunition in the United States? 
Does Babson imply that they are wise or foolish? 

b. Need the allies get back the money which they 
spend in the United States in order not to lose? 

c. State in other than monetary terms the eco- 
nomic cost of the first year of the war. 

8. " Money spent at home for goods is used over 
and over again and benefits many, but money spent 
in the Chicago Mail Order Houses benefits none of us 
but the buyer." 

a. Is $75 spent for china in Minneapolis used 
" over and over again " in Minneapolis ? Explain. 

b. May it be socially economical for the inhab- 
itants of Minneapolis to buy in Chicago? Explain. 

c. Might such a policy affect the population of 
Minneapolis numerically? If a reduction in popula- 
tion should ensue, what persons would lose by the 
change? 

d. Can the inhabitants of a city afford to buy at 
home and pay high prices rather than have the popu- 
lation of the city decrease? Explain. 



MONEY 99 

g. A resident of Mankato, Minnesota, plans to 
spend $300 for a supply of clothing for his family. 

a. Estimate the monetary gain to Mankato from 
having the money spent there. Specify in detail the 
probable division of the sum gained among the vari- 
ous persons in Mankato who may be expected to 
share in the gain. 

b. Make similar estimates, supposing the money 
to be spent in Minneapolis. 

c. Compare the advisability of this individual's 
trading in the one place or the other, (1) if he is a 
retired business man receiving his income from east- 
ern corporations; or (2) if he is a practising phy- 
sician with property interests in Mankato. 

10. The functions of serving as a medium of ex- 
change and as a measure of value " are not two dif- 
ferent functions,. but merely two different aspects of 
the same thing." — Ely, Outlines of Economics^ p. 
221. Show that we may use money as a measure of 
value when we have no thought of using it as a 
medium of exchange. 

B. Monetary Systems. 

ii. What is our standard money? Who deter- 
mines what our standard money shall be? Has it 
always been as it is now? 



100 MONEY 

12. Why is gold well suited to serve as money? 
In what way, if any, are each of the following com- 
modities inferior to gold as a monetary medium: 
wheat, cotton, diamonds, iron, copper, silver? 

13. " The coinage of money has almost universally 
been regarded as a prerogative of the sovereign." 
Why? 

14. " Free (unrestricted) coinage and unre- 
stricted melting keep 23.22 grains of pure gold 
worth $1." Explain. Are both free coinage and 
free melting necessary to maintain the parity of the 
standard money? 

15. a. If an ounce of gold is worth thirty-two 
times as much as an ounce of silver, and if the gov- 
ernment should decree that both gold and silver 
should be standard money, and that there should be 
371.25 grains of silver in a silver dollar and 23.22 
grains of gold in a gold dollar (bimetallism at the 
ratio of 16: 1), in what money would debts be paid? 
Why? Which money would be overrated? Which 
money would become the standard? What would be- 
come of the other money? 

b. At what ratio could both silver and gold be 
maintained as standard money? How could this ratio 
be established? Could we be certain that this ratio 
would be the proper one next year? 



MONEY 101 

1 6. What is Gresham's Law? Why does not our 
silver dollar, worth about fifty cents, replace gold as 
standard money? 

17. " Token money should be light in weight." 

a. What is token money? 

b. What is meant by its being light in weight? 
Why is this necessary? 

c. The Congress of the United States passed a 
law in 1853 providing that the amount of silver in 
the fractional silver coins should be reduced. Why 
do you suppose Congress made this provision? 

18. " Gold is a commodity like all other economic 
goods, and its exchange value is determined accord- 
ing to the principle that controls the exchange value 
of other goods. Its value rises when the gold supply 
is relatively small, and vice ver.sa." 

a. When gold is discovered, what evidence do we 
have of change in the value of gold in the vicinity of 
the "strike"? 

b. How can we ascertain whether gold is rising or 
falling in value? 

c. If gold falls in value, what effect does this 
have on creditors? On debtors? On receivers of 
fixed incomes? On receivers of incomes which change 
less rapidly than other incomes? 



102 MONEY 

ig. " A multiple standard would prevent the in- 
jury that inevitably results from a money standard." 
Explain what is meant by a multiple standard, and 
argue for the truth of this statement. 



XXI. 

CREDIT AND BANKING. 
A. Bank Credit. 

1. " Credit economizes the use of money." Ex- 
plain what is meant. 

2. " With $100 in a bank as a basis for credit, 
the bank can furnish $800 of exchange media." 

a. Just how can the bank do this? 

b. Why is it safe to do this? 

c. Under what conditions could it loan a still 
larger amount on a reserve of $100? 

d. Should the amount which may be loaned in this 
way be specified by law? 

e. If the bank holds a large quantity of high- 
grade bonds, may it more safely keep a small reserve 
than if it has, instead, invested a similar amount in 
farm mortgages? Explain. 

3. What is a check? Why do most persons 
prefer to use checks in exchange transactions? Why 
is it important socially that checks be used? 

103 



104 CREDIT AND BANKING 

4. If a resident of Davenport, Iowa, sends a 
check for $20 to a dealer in St. Paul, the dealer will 
write his name across the back of the check and cash 
it at his bank. 

a. Why will he write his name upon the check? 
How will the bank reimburse itself for the $20 given 
to the dealer? 

b. Suggest the probable route that the check 
would take in returning to the payer in Davenport. 

5. A. B., of St. Louis, buys $1,275 worth of flour 
from X. Y., of Minneapolis. 

a. Suppose settlement to be effected with a wheat 
bill of exchange (also called a sight draft), and write 
out the substance of the bill which would be used. 

b. Suppose settlement to be made with a check, 
and write out a facsimile (in substance). 

c. Suppose settlement to be made with a bank 
draft, and write out a facsimile (in substance). 

d. Describe the imaginary course which each of 
these instruments would take. — (T.) 

6. Many deposits are due not to the deposit of 
money but to the borrowing of bank credit. Explain. 

7. The per capita amount of money, of all kinds, 
in circulation in the United States is about $35, yet 
the deposits per capita in savings banks, July 1, 
1913, were $48.57. How can this be?— P. 



CREDIT AND BANKING 105 

8. " Commercial banking stands or falls, as to its 
social utility, with the merits or demerits of the busi- 
ness man's doings." — Taussig, Principles of Eco- 
nomics, p. 359. Show that this is true. 

B. Bank Note Issue. 

Q. A customer gives his note and opens a check- 
ing account. 

a. Show that if the bank should, instead of giving 
him a checking account, issue him due bills upon it 
(bank notes), the banking principle involved would 
be similar to that involved in a checking transaction. 

b. In what way would the bank's notes be superior 
to checks as media of exchange? 

c. What element of danger is involved in allowing 
banks to issue their own notes? 

d. Should we impose reserve requirements in re- 
gard to notes? Why? 

10. " The issuance of bank notes is far more im- 
portant in a community not accustomed to the use of 
checks, as rural districts, than in communities accus- 
tomed to the use of checks, as cities." Why is this 
true? 

11. Country districts need more money during 
the crop-moving season than at any other time in 
the year. 



106 CREDIT AND BANKING 

a. Show just why it is that an extra amount of 
money is needed at that time. 

b. Would it be advantageous if the farm com- 
munities could, through their banks, manufacture 
their own money? How could this be done? 

c. If they cannot provide their own money, how 
can they get the needed amount? 

d. Trace the movement of this extra money from 
the time it leaves the banks in the farm community 
until it returns to the regular channels. 

12. From the time of the civil war until recently, 
banks could issue notes only upon United States 
government bonds. 

a. Point out one advantage of such a system. 

b. What must have been the chief disadvantage 
of the system? 

c. Is there any significance in the fact that there 
was a financial panic in 1907, and that this note-issue 
provision was temporarily amended at the session of 
Congress next following, in 1908, making it possible 
to issue bank notes upon collateral other than United 
States bonds? 

13. " If banks can issue their own notes when 
called for at the counter, we can always have all the 
circulating medium we need. When trade is taking 
place, securities will be abundant and can be used as 



CREDIT AND BANKING 107 

security for notes, and when trade abates the notes 
will be deposited in the banks, returned to the issuing 
banks and be canceled and retired." 

a. Do you believe such a system of note-issue to 
be proper? 

b. What reserve requirements would be necessary 
for banks issuing notes? 

c. Would it be well to limit this function to cer- 
tain banks? 

d. What advantage might accrue from prohibit- 
ing banks paying out the notes of other banks? 

e. In what way is our banking system analogous 
to the system here suggested? 

C. The Clearing House. 

14. October 1, 1907, the different banks of Ann 
Arbor brought to the clearing claims against each of 
the other banks as follows: 



No. 1 against No. 2 against No. 3 against 

No. 2, $2,213.19 No. 1, $4,284.78 No. 1, $4,974.66 

No. 3, 1,865,09 No. 3, 2,172.45 No. 2, 1,607.79 

No. 4, 2,415.96 No. 4, 3,043.18 No. 4, 1,093.24 

No. 5, 512.21 No. 5, 655.87 No. 5, 625.88 

Total $7,006.45 Total $10,156.28 Total $8,301.57 

No. 4 against No. 5 against 

No. 1, $3,078.73 No. 1, $ 332.15 

No. 2, 1,793.16 No. 2, 377.17 

No. 3, 973.73 No. 3, 1,515.46 

No. 5, 4,633.96 No. 4, 181.56 



Total $10,479.58 Total $2,406.34 



108 CREDIT AND BANKING 

a. Compute the balance for or against each bank. 

b. How much money was needed at the clearing 
house that day? 

c. How can you account for the condition shown 
by bank No. 5, namely, that bank No. 4 cashed so 
many checks drawn upon this bank, while the other 
banks cashed so few, and that it cashed but few for 
any of the other banks? From this showing, is bank 
No. 5 necessarily the smallest of the five banks? 

d. If there are only two banks in a town, how do 
they "clear"? 

e. Show concretely the saving that results from 
the clearing house in this town of five banks. 

/. State definitely the primary function of the 
clearing house. 

g. Is the amount of bank clearings a fair index 
of the prosperity of a community? Explain. 
— (T.) 

15. If a resident of Peoria sends a check to a 
dealer in Chicago, the check may or may not go 
through the clearing house in Peoria. Explain. 

D. The Bank Statement. 

16. A bank statement shows the marketable prop- 
erty of the bank under the caption, assets, or re- 
sources, and the liabilities of the bank to the stock- 
holders, or owners, and to the depositors, or cus- 
tomers, under the caption, liabilities. 



CREDIT AND BANKING 109 

a. Why do banks issue statements? 

b. The assets and liabilities are always exactly 
equal. How do you account for this? 

c. If the assets and liabilities are always equal, 
how can the statement indicate the strength of the 
bank ? 

d. Are the following resources or liabilities (if lia- 
bilities, are they to the stockholders or to the de- 
positors) : capital stock, cash, due from other banks, 
overdrafts, circulation, undivided profits, U. S. bonds, 
surplus, deposits, loans and discounts? 

17. If men in organizing a bank put in $20,000 
in gold, the statement will then stand: Assets, — 
cash, $20,000 ; liabilities, — capital stock, $20,000. 

a. How will the statement be affected if $10,000 
is spent for a site and building? 

b. If X. deposits $200 in gold? 

c. If Y. cashes a $50 check drawn by X.? 

d. If Z. opens an account by depositing a $100 
check written by X. ? 

e. If Z., wishing to borrow, gives his note for 
$300 to the bank and has this amount, less $2.45 
interest, credited to his deposit account? 

/. If the bank spends $1,000 for bonds? 
g. If the bonds are later sold for $1,100? 
h. If Z. pays his note at maturity? 



XXII. 

FOREIGN EXCHANGE. 

i. Par of exchange on London is $4,866. How 
is this figure derived? 

2. Suppose that X. in New York sells A. in 
Liverpool a cargo of cotton for £1,000, and that B. 
in Liverpool sells I. in New York a quantity of 
steel for £1,000. 

a. How can these bills be most easily paid? 

b. Why would it be unwise for A. to ship £1,000 
in gold to X. and for I. to ship a similar amount 
to B.? 

c. I. owes B. £1,000, or $4,866.66. If it costs 
three cents to ship £1 to England, how much would 
I. be willing to pay X. for his claim on A. with 
which to pay B., rather than ship gold to B.? 

d. For how much per pound would X. be willing 
to sell his claim rather than have the gold shipped 
to him at his expense ? 

e. If other persons have also sold abroad and 
possess claims on Englishmen, they will compete with 
X. to sell claims to I. What effect will this have 

110 



FOREIGN EXCHANGE 111 

on the price per pound that importers must pay for 
claims with which they may discharge their obliga- 
tions? How low can this normally go? Why? 

/. If other persons have also bought abroad, they 
will compete with I. in buying X.'s claim. This will 
have what effect on the price that exporters can get 
for their bills? How high can this normally go? 
Why? 

g. What is the high " gold point " ? The low 
"gold point"? 

3. a. If you are in country A and desire ten 
ounces of gold in a distant country, B, under what 
conditions could you buy the right to this much 
gold in B, for less than ten ounces of gold? Under 
what conditions would you have to give more than 
ten ounces? Under what conditions would the price 
be just ten ounces? 

b. Suppose yourself to possess ten ounces of gold 
in country B, which you desire in country A, and 
answer corresponding questions. 

4. What is the fundamental reason for the rate 
of exchange ever being other than par? If the At- 
lantic Ocean were a narrow river, would the rate of 
exchange on London normally vary more, or less, 
from par than it does now? 



112 FOREIGN EXCHANGE 

5. If London bills are selling in New York for 
$4.89, should you expect London banks to pay 
more or less than face value for American bills? 
To charge more or less than face value for Ameri- 
can drafts? 

6. Exporters do not sell their claims direct to 
importers: they sell to middlemen. Who are the 
middlemen? Does the middleman sell the piece of 
paper which he receives from the exporter, to the 
importer, or does he give him another piece of pa- 
per? If the latter, what does he do with the paper 
he buys from the exporter? 

7. If the exchange broker has exhausted his Lon- 
don balance, and is unable to buy exporters' claims, 
what must he do to replenish his balance so that 
he can sell drafts to importers? Then what price 
must he charge for his drafts? 

8. a. If you are a wheat exporter and have sold 
a shipment for £1,000, what can you realize on 
your claim if exchange is $4.84? If exchange is 
$4.87? 

b. Suppose you are an importer and have 
bought merchandise to the value of £1,120. What 
will it cost you to pay your debt if exchange is 
$4.84? If exchange is $4.87? 



FOREIGN EXCHANGE 113 

c. What principle can be deduced as to the ef- 
fect that a high or a low rate of exchange tends to 
have on exports? On imports? — (T.) 



9. Consult the daily papers and find the rate of 
exchange on London to-day. Is the rate normal for 
this time of year? 

10. Excessive exports tend to cause a , llg rate of 
exchange ; but this rate of exchange tends to Urease 

exports and decrease im P orts > and thus brin g tlle rate 
again to normal. Make the proper erasures and 
write a similar statement, beginning, " Excessive im- 
ports ." 

11. Do the following tend to raise or lower the 
rate of exchange on London : Explain. 

a. European travel by Americans? 

b. American travel by Europeans? 

c. Borrowing abroad by selling American securi- 
ties? 

d. Buying of postal money orders to be sent to 
Europe? 

12. "A country that produces gold tends to ex- 
port more gold than it imports." Show how the 



114 FOREIGN EXCHANGE 

production of gold leads to a rate of exchange that 
makes the sending of gold profitable. 

13. " Movements of gold as a result of a high or 
low rate of exchange tend to be self-corrective." 
Explain. 



XXIII. 
FOREIGN TRADE AND THE TARIFF. 

A. The Theory of Free Trade. 

1. " Domestic trade cannot increase the wealth 
of the nation. It is only by foreign trade, and then 
only by getting more than is given, that a nation 
can enrich itself." Discuss. — (T.) 

2. Country A can produce pig iron at a cost of 
ten days' labor per ton and broadcloth at a cost of 
five days' labor per yard. Country B can produce 
the iron at a cost of fifteen days' labor and the 
cloth at a cost of six days' labor. The comparative 
costs of the two articles in each of these countries 
is, then, as follows: Country A, one ton equals two 
yards ; Country B, one ton equals two and one-half 
yards. 

a. Prove in detail that if transportation and all 
costs other than labor be ignored, exchange of these 
products between A and B will pay. 

b. Is such exchange in line with social economy? 

c. Which country is the more efficient in produc- 
ing iron? In producing cloth? — (T.) 

115 



116 FOREIGN TRADE AND THE TARIFF 

3. Country X can produce wheat at a cost of one- 
half day's labor per bushel and knives at a cost of one 
and one-half days' labor per dozen ; Country Y can 
produce the wheat at a cost of one day's labor and 
the knives at a cost of two days' labor. Which coun- 
try is the more efficient in producing wheat? In 
producing knives? Will exchange pay? Prove in 
detail. 

4. Prove that exchange will not pay if compara- 
tive costs are equal. 

5. " We know that England can make ships more 
cheaply than we can, and so we should let her do the 
shipbuilding and turn our capital to such things 
as we can do better than she can." Assuming the 
conclusion — that we should turn our capital to other 
things — to be correct, the reason given for it is not 
entirely satisfactory. Explain. — T. 



6. " The great advantage of foreign trade is in 
furnishing a market for our surplus products which 
would otherwise go to waste." This surely is only 
a minor advantage of foreign trade. Why? Give 
something better. — T. 

7. " It will never pay us to import anything 
which we ourselves can produce." Show that this 
proposition is erroneous. 



FOREIGN TRADE AND THE TARIFF 117 

8. " If we buy rails from England, we get the 
rails, of course, but they get our money ; while, if we 
buy rails at home, we have the rails and the money 
too." — A statement falsely credited to Lincoln. 

a. Is there any reason to expect that our buying 
rails in England would carry off our regular stock 
of money? Explain. 

b. Should we regret such trading because it. de- 
creases our stock of money, if that should result? 

c. Substitute " cotton " for " money," through- 
out the above quotation, and show the fallaciousness 
of the doctrine. — (T.) 

B. The Theory of Protection. 

9. What is a tariff for revenue only? A tariff for 
protection? What general class of goods would bear 
a duty in the one case? In the other? 

10. a. What is the " infant industry " argu- 
ment? 

b. Is it economically sound? 

c. This argument implies that tariffs should be 
maintained for how long a period of time? 

d. What political danger is inherent in " infant 
industry" protection? 

11. "Though injurious economically, a pro*- 
tective tariff may be justifiable politically if there 
is sufficient likelihood of war." 



118 FOREIGN TRADE AND THE TARIFF 

a. Give supporting argument. 

b. Cite historic illustrations in support of this 
position. 

12. " Germany, with a tariff policy, has had the 
advantage of free-trade England in securing tariff 
concessions in foreign countries." Explain. Does 
this furnish an argument in favor of protective 
tariffs ? 

13. " A protective tariff works towards national 
efficiency, for it takes wealth from those who are 
less capable and puts it into the hands of those who 
are more capable." Show that a protective tariff 
may have this result. Do you consider this a valid 
argument in favor of protection? 

14. a. Why are custom duties a popular means 
of getting revenue? 

b. How can they be used to secure revenue with- 
out furnishing protection? How is this done in 
England ? 

C. The Relation of Goods Exported to Goods 
Imported. 

15. " Farmer Jones went in debt last year for 
$4,000 worth of machinery, tile, fertilizer, and other 
equipment for his new farm, but sold only $2,000 
worth of produce." 



FOREIGN TRADE AND THE TARIFF 119 

a. Is Jones following a foolish policy? 

b. Part of his crop during the ensuing years must 
be used for what purpose? 

c. Compare his exports and imports for the first 
year mentioned ; for the years immediately following. 

d. If Jones later loans money to his neighbors, 
how will the exports and imports of his farm com- 
pare during the years he makes these loans? 

e. How will they compare if he then decides to 
" live better," — not to loan out so much money each 
year? 

/. What similarity is there between this case and 
our relation thus far with Europe? 

1 6. a. What should you expect to be the relation 
between the goods exported and the goods imported 
of a country during the following periods: (1) 
When it is first open to settlement or to industrial 
enterprise; (2) when it has become quite well sup- 
plied with imported capital goods; (6) when its 
citizens begin to make investments in other coun- 
tries ; and (4) when a relatively large amount of 
such foreign investments have been made? 

b. In which of these stages is the United States? 
England ? Mexico ? 

17. Will the following tend to increase our ex- 
ports of goods or our imports of goods: Explain. 



120 FOREIGN TRADE AND THE TARIFF 

a. Foreign travel by Americans? 

b. Travel in America by foreigners? 

c. Transportation of American exports in for- 
eign ships? 

d. Borrowing of European capital? 

e. Interest payments on capital borrowed? 
/. Payment of amount borrowed ? 

g. Loaning of capital abroad? 
h. Receiving interest from abroad? 
i. Insuring in foreign insurance companies? 
j. Maintenance of American ambassadors 
abroad ? 

k. Supporting foreign missionaries? 

I. Export of gold? 

m. Sending home of money by immigrants? 

18. " A favorable trade balance is an excellent 
sign of vigorous national life, and of a sound eco- 
nomic structure. It means that the nation is taking 
in more than it is paying out." — Straus, Investor's 
Magazine, Dec. 1, 1914. 

a. Do you agree with the first statement? 

b. Illustrate this point by comparing our " fa- 
vorable," with England's " unfavorable," balance of 
trade. 

c. State the various things that a favorable bal- 
ance of trade may mean. 



FOREIGN TRADE AND THE TARIFF 121 

ig. " The true way to quicken foreign demand 
(for British goods) was to open the ports to that 
foreign supply with which they paid us for what they 
bought from us." — Morley's Gladstone, vol. 1, p. 
267. Show that the above is sound doctrine. — T. 

D. The Cost of Protection. 

20. " Tariff legislation encourages and develops 
sectional selfishness." Explain. 

21. "A protective tariff fosters political cor- 
ruption." How can this be true? Has protection 
in the United States had this result? Explain and 
illustrate. 

22. " A protective tariff tends to hasten the de- 
struction of our natural resources." — Seager, p. 
396. 

" On the contrary, free trade, by stimulating com- 
petition, makes it uneconomical to conserve our lum- 
ber, for example ; it becomes economical to cut only 
the largest trees." 

Discuss the point at issue. 

23. " The protective tariff is the mother of 
trusts." Do you see any reason for this view? Ex- 
plain. 



122 FOREIGN TRADE AND THE TARIFF 

24. The amount added to price by a tariff duty 
does not represent a social cost if the good can be 
produced without the tariff; but it does represent 
a social cost if the protective duty is necessary to 
the production of the good. Show that this is true. 
Then is protection less objectionable when it is not 
needed? What is the objection to it in such a 
case? 

25. " A reduction of $60,000,000 in tariff duties 
means a reduction in the burden upon the people's 
consumption of approximately $600,000,000." — 
Senator Newlands, in The Independent, 73 : 757. 
Explain. 

26. " To the same extent that the home market 
is wrested from foreigners and given to protected 
home producers, the foreign market is wrested from 
unprotected home producers." — Seager, p. 397. 
Show that this is necessarily true. — T. 



XXIV. 

MONOPOLY. 

1. " The monopoly problem is one of the most 
important practical questions with which economics 
has to deal." — Seager, p. 399. Justify this state- 
ment. 

2. What conditions warrant the establishment of 
a public legal monopoly? Illustrate. 

3. Give an example of a private legal monopoly. 
Should this monopoly have been given? 

4. " If a patentee does not make use of his patent 
it should be revoked." Do you agree? Discuss 
fully. 

5. What is a natural monopoly of situation? A 
capitalistic monopoly? Give examples of each. 

6. " Monopoly is more economical socially than 
competition." Explain what is meant and discuss 
the validity of the statement. If the statement is 
true, does it follow that we should encourage monop- 
oly ? Explain. 

123 



124 MONOPOLY 

7. " Monopoly is the natural product of indus- 
trial evolution." Show that there is some ground 
at least for accepting this statement. 

8. See questions on monopoly price in section VI. 

9. Should the following be furnished to the resi- 
dents of a city by a company having a monopoly, or 
by competing companies : water, ice, gas, electricity, 
milk, telephone service, street railway transporta- 
tion, taxi-cab service? Give reasons for conclusion 
in each case. If the decision is in favor of monop- 
oly, specify the form of public control that should 
prevail — public ownership or regulation. 

10. " The franchises granted by these cities are 
the best possible for the gas companies." — A dealer in 
gas company bonds. 

a. Name some of the probable stipulations in 
these franchises. Suggest some probable omissions. 

b. How should you wish the franchises changed 
if you were a citizen of one of these cities? If you 
were a citizen, but at the same time a subscriber to 
the stock of the gas corporation? 

11. Should the policy of the United States gov- 
ernment be to destroy monopolies or to regulate them? 
Discuss the issues involved. 



XXV. 

THE RAILROAD PROBLEM. 

1. A certain American railroad is said to haul 
freight at an average cost of one mill per ton-mile. 

a. What is a ton-mile? 

b. How is the railroad able to carry freight at 
such a low cost? 

c. What would be the cost at this rate of shipping 
a ton of shoes one thousand miles? About what 
would be the cost for each pair of shoes? 

d. What is the social significance of this low cost 
of transportation? 

2. Enumerate the principal costs which a railroad 
has to meet. How are these various items of cost 
affected by, say, a ten per cent increase in traffic? 
How would dividends be affected by such an increase 
in traffic if rates remained as before? Is it possible 
that dividends can be increased by charging a special 
low rate for this additional traffic? 

3. Try to estimate the added cost involved in car- 
rying (a) a ten-pound box from Minneapolis to 

125 



126 THE RAILROAD PROBLEM 

Chicago; (b) an additional box-car empty; (c) an 
additional box-car loaded. — (C.) 

4. If empty cars are being brought to Minneap- 
olis to be filled with flour, at what rates may the 
railroads profitably offer to haul freight in them to 
Minneapolis? May there be social disadvantages 
in allowing the railroads to carry freight at these 
low rates? Explain. — (C.) 

5. " It is an elementary law of trade that better 
prices per unit should be made for large quantities 
than for one article. Then why should you object 
if railroads make special rates for large shipments? " 
Discuss. 

6. " The law does not attempt to prohibit a mer- 
chant from selling to different individuals at differ- 
ent prices or even from giving away his wares. 
Then why should the railroads be so hedged about 
by legal prohibitions upon the prices to be charged? " 
Discuss. 

7. " The Standard Oil Company entered into a 
contract with a railroad under which the railroad 
was to charge it only ten cents per barrel for trans- 
porting its oil while charging other companies thirty- 
five cents for the same service, and was to pay to 



THE RAILROAD PROBLEM 127 

it twenty-five cents of the excessive charge imposed 
upon its competitors." — Seager, p. 431. 

a. Estimate the advantage that this gave to the 
Standard Oil Company. 

b. Were the directors of this company guilty of 
moral turpitude in making such a contract? Were 
the officers of the railroad? 

c. Why should the railroad have wished to enter 
into such a contract? 

8. " The fact that railway service is subject to 
decreasing cost has made public regulation of rates 
more imperative than it would otherwise have been." 
Explain. 

9. Should federal regulations extend to intra- 
state business? Argue both affirmatively and nega- 
tively. 

10. " The power to tax railroads and the power 
to regulate their rates should be lodged in the same 
hands." Give supporting argument. 

11. List the principal arguments for and against 
federal ownership of railroads. 



XXVI. 

THE LABOR PROBLEM. 

1. " The labor problem has arisen because the 
machine has been substituted for the tool." Argue 
in support of this statement. 

2. What is the labor problem? 

3. " The laborer's services are perishable. If he 
does not sell to-day's labor to-day, he loses the possi- 
ble return forever. The employer, on the other 
hand, may safely hold his products for a good 
market." 

a. Does this fairly indicate the employer's in- 
terest in having workmen? Explain. 

b. Is the laborer at a disadvantage relative to 
the employer in bargaining? Discuss. 

4. " The laborer must deliver his commodity 
(service) in person." Is this to his disadvantage? 
Explain. 

5. "Wages (of domestic servants) are not only 
high, but are kept at the high market level without 

128 



THE LABOR PROBLEM 129 

organization." — Taussig, Principles of Economics, 
p. 264. 

a. Contrast the bargaining position of a servant 
with that of a factory employee. 

b. If middle-class families should come to employ 
ten servants for every one now employed, the wages 
of servants would decrease eventually. Why? 
Would there then be need for servants' unions? 

c. What light does this throw upon the general 
problem of labor unions? 

6. " If we could have perfectly free competition 
among employers and perfect mobility among em- 
ployees, labor unions would be of no avail in de- 
termining wages." 

a. Argue in support of this statement. 

b. Would labor unions be necessary even under 
these assumptions to secure proper working condi- 
tions? Explain. 

7. " The most important function of the labor 
union is a social, not an economic, one." What so- 
cial functions do labor unions perform? 

8. " Scientific management means increased effi- 
ciency. Increased efficiency means that fewer men 
will be required, and as this is not to the interest of 
the laboring man, I oppose scientific management." 
Discuss carefully. 



130 THE LABOR PROBLEM 

9. " The workman produces each day $8 worth of 
products, but he gets only $2 of this. The cap- 
italist cheats him out of the other $6." What eco- 
nomic factors are, doubtless, neglected in making this 
statement? 

10. " Employers and employees often forget that 
they have duties to society." 

a. Give several illustrations of this point. 

b. Have street car operators a right to strike 
and prevent the cars from being run? Explain 
fully. 

c. Is this aspect of industry, social dependence 
upon particular industries, becoming more pro- 
nounced? Explain and illustrate. 

d. Should compulsory arbitration boards be pro- 
vided to prevent the cessation of work? Discuss. 

11. "These Welsh coal-miners are committing 
treason in refusing to dig coal at this critical time." 
" The coal barons are growing rich over the in- 
creased naval demand for coal. Why shouldn't they 
share these gains with the miners? They are the 
traitors. If they will share these gains, coal will be 
mined." — Discussion during the July, 1915, coal 
strike in Wales. 

a. Did these miners have a right to share in the 
gains referred to? 



THE LABOR PROBLEM 131 

b. Were they justified in striking in order to ob- 
tain part of these gains? 

12. " It is manifestly unfair for a labor unionist 
to refuse to work at a given wage and at the same 
time to deny to his unemployed brother the right to 
work at this wage." Discuss the issue involved. 

13. Briefs in labor cases have recently been based 
on the social, rather than the legal, aspects of the 
question involved. Explain the significance of this 
fact. 

14. " The workmen at Krupps' (steel works at 
Essen, Germany) are fully provided for from birth 
to old age. They are free from the harassing anx- 
ieties of the ordinary laborer so long as they are 
faithful to the Krupps. . . . The firm simply will 
not have anything or anybody about the place savor- 
ing of labor organization or socialism." — Hunter, in 
Everybody's Magazine, June, 1915. Do you think 
that the average American would like to work under 
such conditions? Discuss. 

15. " We do not pay any employee less than 
$8 per week." — Advertisement of a Cleveland de- 
partment store. 

a. Why was this store able to pay this compara- 
tively high wage? 



132 THE LABOR PROBLEM 

b. Is this store entitled to the patronage of sym- 
pathetic people on account of the wage paid? 

c. Would you recommend that all employers take 
such action by way of solution to the low-wage prob- 
lem? Explain. 

1 6. a. State the chief argument against minimum- 
wage legislation. 

b. Argue in favor of such legislation. 

17. The Studebaker firm has recently provided a 
$1,000 insurance policy for each of its employees. 
The policy is void, however, if the employee leaves, 
or is dismissed from, the employ of the company. 

a. Does this scheme interfere with the freedom of 
the laborer? 

b. Would it be well if every employer insured his 
laborers on these terms? 

c. If insurance is to be furnished, should it be 
furnished by the state? 

18. " We want justice, not charity." — A labor 
agitator. 

a. How would the author of this statement de- 
fine justice? 

b. What does he mean by charity? 

19. a. " We cannot escape having social classes 
and in our society wealth, necessarily, is the line of 



THE LABOR PROBLEM 133 

division. Laborers are on one side of this line and 
the capitalistic employers on the other. Hence the 
labor problem will be with us always." Do you 
agree ? 

b. " The labor problem is due to the separation 
of labor and capital. The only solution is co- 
operation." Evaluate this statement. Compare the 
two statements. 



XXVII. 

GOVERNMENT EXPENDITURE AND 
GOVERNMENT REVENUE. 

A. Introduction. 

i. What is the question that must be answered in 
determining whether or not there has been a real 
increase in the burden of public expenditure? 

2. " The paying of taxes involves no hardship, 
for what the government takes from the taxpayer it 
immediately returns to him for goods and services." 
Criticise. Discuss the truth of the statement if the 
" for " near the end of the sentence were changed to 
" in." 

3. " Expenditures for military purposes are justi- 
fiable, as they furnish employment to men who might 
otherwise starve." Examine. 

4. What connection is there between the following 
factors and the amount of government expenditures : 
The spirit of nationalism, democracy, skill in the 
mechanical arts, city life? Illustrate. 

134 



EXPENDITURE AND REVENUE 135 

5. " The entire question (of the government's 
taking over certain activities) turns upon the choice 
of the means of satisfying certain common collective 
wants." — Adams, The Science of Finance, p. 67. 
Justify this statement. Mention the elements that 
influence choice in this matter. 

B. Revenue. 

6. " The fee system is bad when the fees are re- 
tained as salary by the officer collecting them." Ex- 
plain fully. 

7. What should determine the proportion of the 
cost of paving that should be paid by special assess- 
ment? What is the rule in your city? 

8. " A tax should be a necessary item in every 
domestic budget." — Adams. " It is confiscation to 
lay a tax upon what a man cannot save." — Rogers. 
Point out the implication in each quotation. 

9. " Each person should pay some direct tax." — 
A ministerial student. Upon what analogy is this 
probably based? Is it sound? Is the rule prac- 
ticable ? 

10. Adam Smith's four canons of taxation may be 
characterized as follows : Ability, certainty, con- 



136 EXPENDITURE AND REVENUE 

venience, and economy. Amplify and illustrate each 
canon. 

11. " No tax can be just unless it leaves individ- 
uals in the same relative condition in which it found 
them." — McCulloch, Treatise on Taxation, quoted 
from Bullock's Selected Readings in Public 
Finance , p. 164. Examine. 

12. " Equity in the apportionment of taxes re- 
duces the burden for the support of the state to its 
minimum." — Adams, The Science of Finance, p. 322. 
Explain. 

C. Shifting and Incidence of Taxes. 

13. Shifting of taxes is a price phenomenon. For- 
ward shifting of a tax can take place only through 
a withholding of supply. 

a. Argue in support of the second statement. Il- 
lustrate. 

b. When, then, will forward shifting take place? 
Or, under what conditions will supply be withheld? 
Answer assuming free competition, and assuming 
monopoly. 

14. " With an invariable demand, the price of the 
commodity will rise by just the amount of the tax." 
— Seligman, Shifting and Incidence of Taxation, 



EXPENDITURE AND REVENUE 137 

2nd Ed., p. 189. Does this statement contradict the 
position taken in the preceding problem? If demand 
will raise price after a tax is levied, why should it 
not thus raise price before the tax was imposed? 
Explain. 

15. The Physiocrats argued that all taxes are 
shifted to the landowners. Develop an argument 
leading to this conclusion. 

16. Suggest a plan for corporation taxation that 
would not allow shifting; one for the taxing of mer- 
chants. 

17. See problems in section VI that involve shift- 
ing of taxes. 

D. The Industrial, Results of Taxation. 

18. " A heavy tax on the rich might have the same 
consequence for the poor as would, say, a moderate 
tax on wages." — Pierson, Principles of Economics, 
ii, p. 387. Argue for this proposition. 

19. " The effect of placing heavy taxes on the 
very rich is most harmful in countries which own 
few securities (either domestic or foreign), or in 
countries owning securities for which no market can 



138 EXPENDITURE AND REVENUE 

be found abroad." — Pierson, Ibid., p. 389. How 
can this be true? 

20. " Taxation as a weapon of retaliation often 
proves to be a boomerang." — Seligman. Give sev- 
eral possible illustrations. 

21. " Every tax discourages some kind of pro- 
duction because the aim of taxation is to divert a 
portion of the productive force of the community 
from producing what individuals desire as individ- 
uals to producing something else which they desire 
in their corporate capacity." — Cannan, Equity and 
Economy in Taxation, Econ. Jour., 11:476. 

a. Illustrate the truth of the quotation by assum- 
ing a tax to be placed on furniture; on cattle; on 
the incomes of teachers. 

b. Is this what is usually meant by saying that 
a tax discourages production? Does a tax on land 
value tend to discourage production? Argue both 
affirmatively and negatively. Distinguish between 
a decrease in total production and a change in the 
form of production. 

22. "We (should select) in the imposition of 
fresh taxes commodities for which substitutes cannot 
easily be found and with which consumers will not 
willingly dispense, in order that the incidental loss 



EXPENDITURE AND REVENUE 139 

to producers may be as small as possible." — Sidg- 
wick, Principles of Political Economy, p. 573. Ex- 
plain. 

E. The General Property Tax. 

23. Is all property equally able to bear taxes? 
Explain. 

24. Why is the general property tax particularly 
unsuited to the taxation of business and professional 
men? 

25. " Although credits may be included within the 
term ' property ' from the point of view of law, they 
are not property in any true economic sense." — 
Plehn, Introduction to Public Finance, p. 278. 
Defend this statement. 

26. " Minnesota taxes money and credit at the 
rate of three mills, while it taxes other property 
from six to eight times this rate. This is justifiable 
theoretically and practically." Explain. 

27. " Strictly enforced, the general property tax 
must inevitably impose a burden upon forest lands 
which in certain cases might easily amount to one- 
half or even three-fourths of the total income when 
finally received." — Fair child, Proceedings of Tax 



140 EXPENDITURE AND REVENUE 

Association, 1912, p. 373; National Tax Confer- 
ence, 1912. Mention other properties of which the 
above is true. Does this constitute an argument 
against the general property tax? Explain. 

F. The Inheritance Tax. 

28. The inheritance tax is justified on several 
different grounds. Suggest three or four of these. 
Which is the best? 

29. Rhode Island does not have an inheritance 
tax. Account for this exception to the general rule. 

30. Argue in favor of a national inheritance tax 
to take the place of the state inheritance taxes. 

31. Examine the following propositions: 

a. Rates on inheritances should vary inversely 
with nearness of kin. 

b. Rates should vary directly with nearness of 
kin. 

c. Rates should not vary with relationship. 

d. Rates should not vary with the amount in- 
herited. 

G. The Income Tax. 

32. " The only possible objection to relying al- 
most exclusively upon an income tax for public rev- 



EXPENDITURE AND REVENUE 141 

enue is that it is difficult, or impossible, to administer 
it properly." 

a. Develop an argument in support of this con- 
tention. 

b. Is the difficulty of proper administration in- 
surmountable? Discuss. 

33. Give several illustrations to show what is 
meant by " stoppage at the source." 

34. Argue that income from personal services 
should be taxed at a lower rate than income from 
property. 

35. Account for the growing demand for state in- 
come taxes in this country. 

36. Is there any objection to having both a na- 
tional and a state income tax? Would that amount 
to double taxation ? 

H. The Taxation of Corporations. 

37. Should corporations be taxed at the rates im- 
posed upon other property? 

38. " The service charges of public utility cor- 
porations should be pushed down to a no-tax basis 



142 EXPENDITURE AND REVENUE 

and the corporations exempted from taxation." 
Give arguments for and against. 

39. Should not Michigan residents holding stock 
in an Ohio corporation be free from taxation upon 
the stock inasmuch as Ohio taxes all stock to the 
corporation ? Should they not be taxed upon it that 
they may share in the burden of their government? 

40. " Life insurance is a tax, and to tax it is to 
commit the economic barbarism of taxing a tax." — 
An insurance journal. 

a. What does the author mean by calling life in- 
surance a tax? Is he justified in so characterizing 
it? 

b. Show that the tax on insurance companies is 
not inequitable. 

c. Argue for the exemption of insurance com- 
panies from taxation. 

41. What is the proper basis for the taxing of 
corporations: property, gross revenue, or net rev- 
enue? Explain. 

42. How shall the property value of a railroad 
be apportioned, for purposes of taxation, to the 
different political divisions through which the road 
runs ? 



EXPENDITURE AND REVENUE 143 

43. " Taxes levied upon the revenue of corpora- 
tions usually have a property basis, and thus revenue 
taxation cannot be defended on the ground that it 
avoids the difficulties of a property valuation." 
Examine. 

I. Single Land Tax. 

44. State the argument for a single land tax; 
against it. 

45. " A tax on goods increases their price, a tax 
on land decreases its price. The aim should be to 
make all things low in price. Therefore, we should 
tax land only." Examine. 

46. " Rent is a price paid for the management of 
land in the industrial system." Argue in support of 
this statement. What bearing has this on the single 
tax controversy? 

47. Contrast the positions of the Physiocrats in 
regard to a single land tax with that taken by Henry 
George. 

48. Sismondi asked, in answer to a demand for a 
revision of the land tax, " Do you wish equality be- 
tween men or between lands ? " Show that this ques- 
tion was pertinent. 



144 EXPENDITURE AND REVENUE 

49. What relation is there between the tax on the 
unearned increment of land and the single land tax? 
What is the vital difference between them? 

50. " Increase in land value may be earned 
through purchase just as present rents may be so 
earned." Explain. What limitations does this 
place upon increment taxes if we would have them 
avoid confiscation from present owners? Suggest a 
plan for taxing the increase in land value that will 
not confiscate present value. 

51. What objection, other than that of confiscat- 
ing from present owners, is there to taxing away all 
of the increase in land value? 

52. What is the objection to modifying the gen- 
eral property tax in the one particular of taxing 
away the benefits resulting from the privilege of land 
ownership? 



XXVIII. 
PROJECTS OF ECONOMIC REFORM. 

1. " The economist reformer necessarily bases his 
proposals upon some concept of an ideal society." 

a. Outline briefly the main features that you 
would expect in an ideal society. 

b. Are any economic reforms necessary to the 
realization of, or to the approach toward, this ideal? 
If so, what are they? 

2. " Proposed reforms are ' mechanical ' or * evo- 
lutionary.' " Distinguish between these two classes 
of proposals. Illustrate each. 

3. " Pecuniary gain, not social utility, guides 
individuals in their industrial conduct." Show that 
desire for pecuniary gain may lead to the best 
service for society; that it may lead to harmful, or 
at least not to the best, service. Which condition 
is the more prevalent? If price (desire for pecuniary 
gain) does not regulate industrial conditions in the 
interest of society, what can we do about it? Answer 
explicitly. 

145 



146 PROJECTS OF ECONOMIC REFORM 

4. " As our industrial relations become more com- 
plex, social control becomes more necessary." 

a. Are our industrial relations becoming more 
complex? Explain and illustrate. 

b. Give illustrations of social control of industry, 
or of industrial conditions. 

c. May social control be due in some instances 
not to the growing complexity of industrial relations 
but to the growth of the social conscience — to the 
extension of the spirit of brotherhood? Illustrate. 

5. " Medical assistance is so vital to the health and 
life of the people that it will sooner or later be so- 
cialized." What is meant by this statement? How 
could medical assistance be socialized? What would 
be the advantage gained? Would there be any dis- 
advantage? Would this be an "economic reform"? 

6. " Canal dues and highway tolls have been 
abolished, but railway freights (on government 
owned roads) never : why the one and not the other? " 
— Pierson, Principles of Economics. Answer. 

7. Should the state furnish university instruction 
without expense to the student? If the state gives 
instruction without expense, why should it not also 
support the student during the years of study? 



PROJECTS OF ECONOMIC REFORM 147 

8. Suppose that X. and Y. are twins, and of 
equal native capacity. Suppose that their parents 
die when they are both young, and that X. is then 
brought up and educated by a rich uncle, while Y. 
is brought up but not given much education by a 
poor aunt. X. makes an income of $10,000 per year ; 
Y. makes one of $500. Is this right?— P. 

9. " The practices of scientific advertising and of 
suggestive selling have very little proved utility and 
are nearly as likely to be applied to force the wrong 
articles on the wrong purchasers as to distribute 
wealth along the lines of its maximum utility for 
consumption." — Hobson, Work and Wealth, p. 218. 
Evaluate this statement. Accepting it as true, what 
should be our attitude toward the practices men- 
tioned? 

10. " If there are trades incapable of bearing the 
true costs of maintenance of the labor they employ 
(in wages and insurance), it would still be right to 
place on them the obligation to do so, for their de- 
struction will be a gain, not a loss, to a society that 
understands its human interests." — Hobson, Ibid., 
p. 230. 

a. Suggest the various kinds of insurance that 
might be included here. 

b. Give argument in support of this contention. 



148 PROJECTS OF ECONOMIC REFORM 

c. Argue in opposition to this contention. Show 
that industry as a whole might be in such a condi- 
tion that these costs could not be borne. Should a 
person be prohibited from working, if he cannot 
earn the total costs of his maintenance? 

11. "Equality in income would result in a great 
waste in the social utility derived from consump- 
tion." — Hobson. Defend this statement. 

12. In the preface to Munera Pulveris, Ruskin 
criticises the teachers of economics, and by inference 
the industrial order, because those things which are 
" illth " may be rated above those things which are 
" wealth." 

a. Give a few illustrations to show that we often 
make the mistake to which Ruskin objects. 

b. Accepting this to be a regrettable condition, 
what can we do about it? 

c. As times goes on, do you believe that market 
estimates will become more, or less, accurate in esti- 
mates of "wealth"? Explain. 

13. " No longer do men see it wise to work four- 
teen hours per day. . . . The fact that there are 
no men to regret these shorter hours with their lim- 
itation of product amounts to a direct approval of 
the choice of leisure as against product. What de- 
termines that the final wise limit of restriction upon 



PROJECTS OF ECONOMIC REFORM 149 

labor and product has already been reached?" — 
Davenport, The Annalist, Nov. 8, 1915. 

a. Do you believe that the average working day 
should be shortened still more? 

b. Formulate a general statement as to when it 
is advisable to substitute leisure for product. 

c. In this same article Davenport makes a similar 
point in regard to the saving of capital. Formulate 
a proposition and a question in line with this 
position. 

14. " How far is it true that the pleasure of the 
wearer of pearls can be regarded as offsetting the 
pains and dangers of the pearl diver? The wearing 
of hand-made lace as offsetting the making of it? 
The artificial flowers, the labor of the flower girl?" 
— Davenport, Ibid. 

a. State definitely the point that Davenport is 
making here. 

b. If the pleasure to the user does not offset the 
pain to the producer, should the article be produced? 
Discuss fully, stating some ground, at least, for not 
taking the negative view? 

c. State the difference between the point in this 
quotation and that in the preceding one. 

15. "No person should be allowed to give his 
heirs more than $1,000,000." 



150 PROJECTS OF ECONOMIC REFORM 

a. Argue that large fortunes are socially unde- 
sirable. 

b. What may be the danger in such a policy of in- 
heritance taxation as is suggested here? 

c. " If the large fortunes are undesirable, condi- 
tions should be adjusted so that they cannot be ac- 
cumulated." Do you agree? 

1 6. "All 'unearned' incomes should be taxed 
into the treasury of the state." What is meant by 
unearned income? Is there an element of this kind in 
the landlord's income? In the return to a stock 
speculator? In a lawyer's income? In a professor's 
salary? In a laborer's wages? 

17. " It is inevitable that certain persons should 
ride and that others should walk, but we should make 
the walking as good as possible." 

a. Is inequality of income inevitable? Explain. 

b. Name several social and economic improve- 
ments that are suggested by the second clause. 



DIRECTIONS TO THE STUDENT. 

I. Attacking the Problems. 

1. Read the assigned problems carefully. 

2. Study the text or other assigned reading, keep- 
ing the problems in mind. 

3. Make sure that you understand the terms used 
in the problems. 

4. Determine the particular point at issue. 

5. Bring to bear upon the problem all the knowl- 
edge you possess that relates to it, whether gained 
from the text, lectures, class-room discussion, or per- 
sonal experience. Consult your notes. 

6. State your answer definitely and adequately. 
Yes and no answers are never permissible; explain, 
discuss, but do not say more than is necessary; be 
succinct. Where possible, state the economic prin- 
ciple involved and give illustrations, preferably 
original ones. 

II. Preparing and Correcting the Written Ex- 
ercises. 

The following directions, which appeared in the 
original local edition of this book, are included here 
for the convenience of such teachers as may care to 
use them. 

151 



152 DIRECTIONS .TO THE STUDENT 

Students will prepare the solutions to the prob- 
lems, which are assigned to be written, upon " eco- 
nomics paper." * The student's seat number and 
his name shall be placed on the first and second lines 
in the center of the first page, the instructor's name 
and the number of the recitation section on the third 
and fourth lines at the left of the page, and the 
exercise number and the assignment on the third and 
fourth lines at the right of the page. For example : 

156 
A. B. Smith 

Mr. Ex.7 

Sec. 5. VI— 1, 3, 6-10, 12. 

The following scheme of marking will be used: 
y/ signifying excellent ; no mark, good ; wave-line, 
something wrong ; p, missed the point ; i, incomplete ; 
v, vague ; a, inadequate ; q, see the question ; x, 
wrong. A check ( \/) placed at the top of the 
first page will indicate that the paper as a whole 
is excellent or very good; a cross (X) will indicate 
that it is below grade. The papers will be marked 
and returned to the student to be corrected, in red 
ink, and returned to the instructor. Papers which 
do not need corrections shall also be returned to the 
instructor for filing. The student will label all of 
the returned papers corrected. 

*This paper consists of two sheets about 9y 3 inches by 12 
inches stapled together and folded into four pages. 



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ADAMS'S SCIENCE OF FINANCE 

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